KABOOOM: BERKSHIRE HATHAWAY INC OUTLOOK TO NEGATIVE FROM STABLE BY S&P

Tyler Durden's picture

More shortly. And yes, just as ZH predicted an hour ago.

Full report:

Overview

On Aug. 5, 2011, Standard & Poor's Ratings Services lowered its long-term sovereign credit rating on the United States of America to 'AA+' and assigned a negative outlook.

As a result, we have lowered the long-term counterparty credit and financial strength ratings on five U.S. insurance groups to 'AA+' and assigned negative outlooks.

We have also affirmed the ratings on five other U.S. insurance groups and revised the outlooks on these companies to negative from stable.

In our view, the U.S. sovereign credit rating constrains the long-term ratings on these U.S. insurers because their businesses and assets are highly concentrated in the U.S. and they have significant holdings in U.S. Treasury and agency securities.

Rating Action

On Aug. 8, 2011, Standard & Poor's Ratings Services lowered to 'AA+' from 'AAA' its long-term counterparty credit and financial strength ratings on the member companies of five U.S. insurance groups: Knights of Columbus, New York Life, Northwestern Mutual, Teachers Insurance & Annuity Assoc. of America (TIAA), and United Services Automobile Assoc. (USAA). The outlooks on the ratings on all of these companies are negative. In addition, Standard & Poor's lowered the ratings on approximately $17 billion of securities issued by New York Life, Northwestern Mutual, TIAA, USAA, and their affiliates.

At the same time, Standard & Poor's affirmed the 'AA+' ratings on the members of five other insurance groups--Assured Guaranty, Berkshire Hathaway,
Guardian, Massachusetts Mutual, and Western & Southern--and revised the outlooks on ratings on these companies to negative from stable.

Rationale

The rating actions on these 10 insurance groups follow the lowering of the long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' (see "United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative," Aug. 5, 2011.) We factor direct and indirect sovereign risks--such as the impacts of macroeconomic volatility, currency devaluation, asset impairments, and investment portfolio deterioration--into our financial strength ratings. Per our criteria, the sovereign local-currency credit rating constrains our financial strength ratings on insurers (see "Counterparty Credit Ratings And The Credit Framework," April 14, 2004). The 10 affected insurance groups operate in the U.S. and generally have significant holdings of U.S. Treasury and agency securities. For the insurers with the most exposure, these investments constituted as much as 200% of total adjusted capital at year-end 2010.

In our opinion, very strong financial profiles and favorable business profiles support the 'AA+' ratings on the 10 affected U.S. insurance groups. In our view, these companies maintain very strong capital and liquidity. In addition, we believe that the significant retail insurance liabilities--such as whole life insurance and deferred annuities--that some of these companies have are less prone to withdrawals or surrenders than institutional liabilities. Knights of Columbus, TIAA, and USAA also benefit from affinity relationships with their policyholders, which enhance the persistency of liabilities.

Our view of these companies' fundamental credit characteristics has not changed. Rather, the rating actions reflect the application of criteria and our view that the link between the ratings on these entities and the sovereign credit ratings on the U.S. could lead to a decline in the insurers' financial strength. This is because these companies' businesses and assets are highly concentrated in the U.S.

For related rating actions on other U.S. financial services companies, select GSEs, and funds, see "Ratings On Select GREs And FDIC- And NCUA-Guaranteed Debt Lowered After Sovereign Downgrade," also published today.

Outlook

Under our criteria, the local-currency sovereign credit rating on the U.S. constrains the ratings on domestic insurance operating and holding companies. If we were to lower our rating on the U.S. again, we would likely take the same rating action on the affected insurers and their related obligations. Alternatively, if we were to revise the rating outlook on the U.S. to stable, we would likely revise the outlook on the affected insurers to stable, assuming there is no deterioration in a particular insurer's business and financial profiles.

Related Criteria And Research

    Ratings On Select GREs And FDIC- And NCUA-Guaranteed Debt Lowered After Sovereign Downgrade, Aug. 8, 2011
    United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative, Aug. 5, 2011
    Counterparty Credit Ratings And The Credit Framework, April 14, 2004

Ratings List

Ratings Lowered And Removed From CreditWatch Negative
                                 To                    From
Knights of Columbus
 Counterparty Credit Rating      AA+/Negative/--       AAA/Watch Neg/--
 Financial Strength Rating       AA+/Negative          AAA/Watch Neg

New York Life Insurance Co.
 Counterparty Credit Rating      AA+/Negative/A-1+     AAA/Watch Neg/A-1+
 Financial Strength Rating       AA+/Negative          AAA/Watch Neg
 Subordinated Debt               AA-                   AA/Watch Neg
New York Life Insurance & Annuity Corp.
 Counterparty Credit Rating      AA+/Negative/--       AAA/Watch Neg/--
 Financial Strength Rating       AA+/Negative          AAA/Watch Neg
New York Life Funding
New York Life Global Funding
 Senior Secured                  AA+                   AAA/Watch Neg

Northwestern Mutual Life Insurance Co.
 Counterparty Credit Rating      AA+/Negative/--       AAA/Watch Neg/--
 Financial Strength Rating       AA+/Negative          AAA/Watch Neg
 Subordinated Debt               AA-                   AA/Watch Neg
Northwestern Long Term Care Insurance Co.
 Counterparty Credit Rating      AA+/Negative/--       AAA/Watch Neg/--
 Financial Strength Rating       AA+/Negative          AAA/Watch Neg

Teachers Insurance & Annuity Assoc. of America
 Counterparty Credit Rating      AA+/Negative/--       AAA/Watch Neg/--
 Financial Strength Rating       AA+/Negative          AAA/Watch Neg
 Senior Unsecured                AA+                   AAA/Watch Neg
 Subordinated Debt               AA-                   AA
TIAA-CREF Life Insurance Co.
 Counterparty Credit Rating      AA+/Negative/--       AAA/Watch Neg/--
 Financial Strength Rating       AA+/Negative          AAA/Watch Neg

United Services Automobile Assoc.
USAA Casualty Insurance Co.
USAA General Indemnity Co.
USAA Life Insurance Co.
USAA Life Insurance Co. of New York
 Counterparty Credit Rating      AA+/Negative/--       AAA/Watch Neg/--
 Financial Strength Rating       AA+/Negative          AAA/Watch Neg
USAA Capital Corp.
 Counterparty Credit Rating      AA+/Negative/A-1+     AAA/Watch Neg/A-1+
 Senior Unsecured                AA+                   AAA/Watch Neg
 Commercial Paper                A-1+                  A-1+

Ratings Affirmed; Outlook Revised To Negative
                                 To                    From
Assured Guaranty Ltd.
 Counterparty Credit Rating      A+/Negative/--        A+/Stable/--
 Junior Subordinated Debt        A-                    A-
 Senior Unsecured Debt           A+                    A+
Assured Guaranty (Bermuda) Ltd.
Assured Guaranty (Europe) Ltd.
Assured Guaranty (UK) Ltd.
Assured Guaranty Corp.
Assured Guaranty Municipal Corp.
Assured Guaranty Municipal Insurance Co.
 Counterparty Credit Rating      AA+/Negative/--       AA+/Stable/--
 Financial Strength Rating       AA+/Negative          AA+/Stable
 Financial Enhancement Rating    AA+/Negative          AA+/Stable

Berkshire Hathaway Inc.
 Counterparty Credit Rating      AA+/Negative/A-1+     AA+/Stable/A-1+
 Senior Unsecured                AA+                   AA+
 Commercial Paper                A-1+                  A-1+
Berkshire Hathaway International Insurance Ltd.
 Counterparty Credit Rating      AA+/Negative/A-1+     AA+/Stable/A-1+
 Financial Strength Rating       AA+/Negative          AA+/Stable

Berkshire Hathaway Life Insurance Co. of NE
Columbia Insurance Co.
 Counterparty Credit Rating      AA+/Negative/--       AA+/Stable/--
 Financial Strength Rating       AA+/Negative/--       AA+/Stable/--
 Financial Enhancement Rating    AA+/Negative          AA+/Stable
GEICO Corp.
 Counterparty Credit Rating      AA+/Negative/--       AA+/Stable/--
 Senior Unsecured                AA+                   AA+
General Re Corp.
 Counterparty Credit Rating      AA+/Negative/A-1+     AA+/Stable/A-1+
 Commercial Paper                A-1+                  A-1+
General Re Financial Products Corp.
National Re Corp.
 Counterparty Credit Rating      AA+/Negative/--       AA+/Stable/--
Berkshire Hathaway Assurance Corp.
 Financial Strength Rating       AA+/Negative          AA+/Stable
 Financial Enhancement Rating    AA+/Negative          AA+/Stable
National Fire & Marine Insurance Co.
 Counterparty Credit Rating      AA+/Negative/--       AA+/Stable/--
 Financial Strength Rating       AA+/Negative          AA+/Stable
 Financial Enhancement Rating    AA+/Negative          AA+/Stable
Central States Indemnity Co. of Omaha
Continental Divide Insurance Co.
Cornhusker Casualty Co.
CSI Life Insurance Co.
Cypress Insurance Co. (CA)
Fairfield Insurance Co.
GEICO Casualty Co.
GEICO General Insurance Co.
GEICO Indemnity Co.
General Reinsurance AG
General Reinsurance Australia Ltd.
General Reinsurance Corp.
General Star Indemnity Co.
General Star National Insurance Co.
Genesis Indemnity Insurance Co.
Genesis Insurance Co.
Government Employees Insurance Co.
Kansas Bankers Surety Co.
Medical Protective Co.
National Indemnity Co.
National Indemnity Co. of Mid-America
National Indemnity Co. of the South
National Liability & Fire Insurance Co.
National Reinsurance Corp.
Redwood Fire & Casualty Insurance Co.
Wesco-Financial Insurance Co.
 Counterparty Credit Rating      AA+/Negative/--       AA+/Stable/--
 Financial Strength Rating       AA+/Negative          AA+/Stable
Faraday Reinsurance Co. Ltd.
General Re Life Corp.
General Reinsurance Africa Ltd.
General Reinsurance Life Australia Ltd.
 Financial Strength Rating       AA+/Negative          AA+/Stable

Guardian Insurance & Annuity Co.
Berkshire Life Insurance Co. of America
 Counterparty Credit Rating      AA+/Negative/--       AA+/Stable/--
 Financial Strength Rating       AA+/Negative          AA+/Stable
Guardian Life Insurance Co. of America
 Counterparty Credit Rating      AA+/Negative/--       AA+/Stable/--
 Financial Strength Rating       AA+/Negative          AA+/Stable
 Subordinated Debt               AA-                   AA-

Massachusetts Mutual Life Insurance Co.
 Counterparty Credit Rating      AA+/Negative/A-1+     AA+/Stable/A-1+
 Financial Strength Rating       AA+/Negative          AA+/Stable
 Commercial Paper                A-1+                  A-1+
 Subordinated Debt               AA-                   AA-
C.M. Life Insurance Co.
MML Bay State Life Insurance Co.
 Counterparty Credit Rating      AA+/Negative/--       AA+/Stable/--
 Financial Strength Rating       AA+/Negative          AA+/Stable

Western & Southern Financial Group Inc.
 Counterparty Credit Rating      AA-/Negative/--       AA-/Stable/--
 Senior Unsecured                AA-                   AA-
Western and Southern Life Insurance Co.
Western-Southern Life Assurance Co.
Columbus Life Insurance Co.
Integrity Life Insurance Co.
National Integrity Life Insurance Co.
 Counterparty Credit Rating      AA+/Negative/--       AA+/Stable/--
 Financial Strength Rating       AA+/Negative          AA+/Stable
Lafayette Life Insurance Co.
 Financial Strength Rating       AA+/Negative          AA+/Stable