MOODY'S REVIEWS GENERAL RE CORPORATION FOR POSSIBLE UPGRADE (SENIOR AT Aa1); CONTINUES REVIEW OF BERKSHIRE HATHAWAY (SENIOR AT Aa1) AND SUBSIDIARIES FOR POSSIBLE UPGRADE
New York, 06-19-98 -- Moody's Investors Service is continuing its rating review of Berkshire Hathaway Inc. (senior debt at Aa1) and certain subsidiaries for possible upgrade following the company's announcement today that it has reached a definitive merger agreement to acquire General Re Corporation in a transaction valued at $22 billion. The acquisition will be funded through the issuance of Berkshire Class A and B shares. Berkshire Hathaway Inc.'s ratings were placed under review for possible upgrade on March 6, 1998. In addition, the ratings of Government Employees Insurance Company (insurance financial strength at Aa1) and GEICO Corporation (senior debt at Aa3), also remain under review for possible upgrade.
Moody's also announced that it has placed General Re Corporation's Aa1 senior debt rating on review for possible upgrade. The rating agency will also review for upgrade the Aa2 senior debt rating of National Re Corporation, a downstream holding company of General Re, and the Aa1 senior long-term debt rating of General Re Funding Corporation, whose debt is guaranteed by the parent company. General Reinsurance Corporation's Aaa insurance financial strength rating was confirmed, as was the Prime-1 short-term debt rating of General Re Corporation, and the Prime-1 short-term debt rating of General Re Funding Corporation, based on a guarantee provided by General Re Corp. Moody's noted that General Re should benefit strategically from the access to additional capital as part of the Berkshire Hathaway Group, enhancing its ability to assume considerable risk positions on its reinsurance contracts. Also, General Re's creditors may benefit from the enhanced financial resources of the combined entity.
General Re is the dominant 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. General Re also operates a derivative financial products subsidiary, which may also benefit from the expanded capital base of the combined organization.
The rating agency noted that the strong market positions of Berkshire Hathaway's main operating subsidiaries, GEICO and National Indemnity Company, and the success of the company's investment strategy, have combined to drive continued improvements in the firm's financial and operational position. Moody's said that Berkshire Hathaway maintains superior capitalization and modest debt leverage, while enjoying diversified and overall strong earnings from its principal insurance and non-insurance subsidiaries. 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 structure and improving brand, as a leading direct-response underwriter. 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 and is also the repository of most of Berkshire's portfolio of common stocks.
The following ratings are under review for possible upgrade:
General Re Corporation -- senior unsecured long-term debt at Aa1;
General Re Funding Corporation -- guaranteed senior unsecured long-term debt at Aa1;
National Re Corporation -- senior unsecured long-term debt at Aa2;
Berkshire Hathaway Inc. – senior unsecured long-term debt at Aa1;
Government Employees Insurance Company – insurance financial strength at Aa1;
GEICO Corporation – senior unsecured long-term debt at Aa3;
Wesco Financial Corporation – senior unsecured long-term debt at Aa3;
Scott Fetzer Financial Group, Inc. – guaranteed senior long-term debt at Aa1.
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 manufacturing, publication, retail and finance businesses. As of March 31, 1998, Berkshire Hathaway reported year-to-date pre-tax operating income of $366 million (excluding realized investment gains of $723 million), and shareholders' equity of $34.8 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 March 31, 1998, General Re reported year-to-date pre-tax operating income of $350 million and shareholders' equity of $8.4 billion.
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