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Rating Action:

Moody’s affirms National Indemnity’s Aa1 financial strength rating, stable outlook

10 December 2021


New York , December 10, 2021 -- Moody's Investors Service has affirmed the Aa1 insurance financial strength rating of National Indemnity Company (NICO), the lead member of NICO Group, which encompasses the diversified insurance and reinsurance businesses owned by Berkshire Hathaway Inc. (Berkshire, long-term issuer rating Aa2 stable, NYSE: BRK-A). Moody's has also affirmed the Aa1 insurance financial strength rating of Columbia Insurance Company (Columbia), a sister company to NICO. The rating outlook for these companies is stable.

RATINGS RATIONALE

The affirmation of the NICO and Columbia ratings reflects NICO Group's extraordinary capitalization, its broad range of products and services, and its healthy profitability, according to Moody's. NICO Group has the largest capital base of any (re)insurance group in the world. Its diversified operations include personal auto insurance sold directly to consumers across the US (GEICO), various property/casualty and related coverages sold through brokers and agents mainly to commercial clients in the US (Berkshire Hathaway Primary Group), and property/casualty and life/health reinsurance sold directly and through brokers to clients worldwide (Berkshire Hathaway Reinsurance Group). NICO Group is the market leader in writing large-dollar, long-tail retroactive reinsurance for major insurance clients. The group also benefits from Berkshire's exceptional financial flexibility.

Credit challenges for NICO Group include potential earnings and capital volatility stemming from its large, concentrated stock investments and large individual underwriting transactions. The group also has a complex organizational structure, with NICO owning Burlington Northern Santa Fe, LLC (long-term issuer rating A3 stable), a leading North American railroad and one of Berkshire's other major operating segments. NICO Group maintains strong capitalization relative to its (re)insurance activities, with or without the capital allocated to the railroad, and the railroad pays sizable yearly dividends to NICO.

Moody's has also affirmed the Baa3 senior unsecured debt rating of Finial Holdings, Inc., a relatively small downstream holding company, based on the sound capitalization of its operating subsidiary, Finial Reinsurance Company, offset by the runoff status of this operation.

Based on Berkshire's consolidated GAAP results, the (re)insurance businesses reported net income of $3.9 billion for the first nine months of 2021, down from $4.7 billion in the prior-year period. The current-year results were hurt by higher catastrophe losses, higher personal auto claim frequency and severity, higher losses in life reinsurance, and somewhat lower investment income than in the prior year. Moody's expects that these (re)insurance businesses will continue to achieve solid earnings and capital growth over time.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of NICO Group's ratings is unlikely given its strategic emphasis on high-risk investments along with competitive pressures in the reinsurance market from traditional carriers and alternative capital sources.

Factors that could lead to a rating downgrade include (i) underwriting and/or investment results causing a 20% decline in NICO Group's policyholders' surplus in a 12-month period, (ii) a decline in Berkshire's financial flexibility (for example, total consolidated leverage exceeding 30%, or cash and equivalents available to Berkshire and NICO Group declining toward $30 billion), or (iii) a rating downgrade of Berkshire or a major affiliate.

Moody's has affirmed the following ratings:

National Indemnity Company – insurance financial strength at Aa1;

Columbia Insurance Company – insurance financial strength at Aa1;

Finial Holdings, Inc. – $200 million senior unsecured notes due in 2023 at Baa3.

The rating outlook for these companies is stable.

The principal methodology used in these ratings was Reinsurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187551 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Based in Omaha, Nebraska, NICO Group has the largest capital base of any (re)insurance group in the world. Its diversified operations include personal auto insurance, commercial property/casualty insurance, and property/casualty and life/health reinsurance. NICO Group reported gross premiums written of $57 billion and net income of $16 billion in 2020 on a combined statutory basis. Policyholders' surplus was $238 billion as of December 31, 2020.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Bruce Ballentine
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Sarah Hibler
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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