Moody's Investors Service Friday assigned a coveted Aaa insurance financial strength rating to Berkshire Hathaway Assurance Corp., giving Warren Buffett's new bond insurer the second, and perhaps final, gilt-edged rating it needs to start writing primary market insurance.
The rating for BHAC is based on the backing of Columbia Insurance Co., which unconditionally supports the policies written by BHAC on or after March 31, Moody's said. Columbia and BHAC are both owned by Buffett's Berkshire Hathaway Inc.
"BHAC has rapidly grown its insured portfolio of U.S. public finance credits during a period of great stress in the credit markets," said James Eck, Moody's vice president, in the rating announcement. "The company's sound financial profile and its affiliation with Berkshire give it a meaningful presence in the financial guaranty insurance marketplace."
The rating is the second that Moody's has assigned to BHAC, after giving a Aaa secondary market rating to BHAC earlier this year. That rating has been assigned to 275 policies - of which more than one could be assigned to each issue - for mostly general obligation and tax-backed issues like water and sewer, Moody's said. It was based on a similar guaranty from National Indemnity Co., another Berkshire insurance company that backed BHAC initially, and will not be used going forward.
The Columbia guaranty for BHAC ranks second to those of Columbia's policyholders, but the implicit "ownership and oversight" of Berkshire's management was enough to assign the Aaa rating, Moody's said. The rating agency also assigned a Aaa insurer financial strength rating to Columbia Insurance.
As of the end of March, BHAC had a statutory capital cushion of $1 billion and total claims paying resources of approximately $1.1 billion, Moody's said. Despite these strengths, the rating agency sees the company's short operating history and limited underwriting and surveillance infrastructure as limiting factors.
Standard & Poor's also assigns a AAA primary market rating to BHAC, while Fitch Ratings does not rate it.
Securing the Moody's rating was important for the market's newest bond insurer because many mutual funds require a bond to be rated by at least two rating agencies in order for the fund to own it.
"There are a lot of institutional investors who require two rating agencies and it doesn't matter what the combination of those two is," said Michael Pietronico, chief executive officer at Miller Tabak Asset Management.
Berkshire joins Financial Security Assurance Inc. and Assured Guaranty Ltd. as the only triple-A rated bond insurers with ratings that carry stable outlooks from the agencies that rate them.