Berkshire maintains its top A++ rating

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Posted: Thursday, May 16, 2013 12:00 am

Insurance rating company A.M. Best Co. affirmed its top rating of Berkshire Hathaway Inc. on Wednesday but said CEO Warren Buffett’s importance to the company and a “lack of transparency” about his successor “definitely pose a risk to the organization and is a continuing concern.”

Best, based in Oldwick, N.J., continued its top-of-scale A++ financial strength rating and aaa credit rating of Berkshire’s National Indemnity Co. of Omaha and affiliates.

The ratings report cited National Indemnity’s “superior operating performance,” strong capital and contributions to Berkshire’s overall success, saying its management is adept at taking advantage of opportunities and managing risks. Buffett, 82, has said that Berkshire’s board of directors agreed on a CEO candidate and two backups, all highly qualified and ready in case one is needed, but he has not named them.

The ratings report said: “Although A.M. Best believes there are very strong internal candidates to succeed Mr. Buffett, the lack of clarity in regards to a chosen successor adds a degree of uncertainty to the future direction of the corporation, as Mr. Buffett personally controls the capital allocation within the firm.

“Nevertheless, A.M. Best believes Berkshire’s corporate strategy, culture and decentralized operating structure will facilitate a successful transition in management when it occurs.”

The report said it expects Berkshire to profit from its recently announced expansion into the commercial property insurance business.

Also Wednesday, Berkshire reported ownership of about 6.5 million shares of Chicago Bridge & Iron Co., an energy construction and engineering company. Berkshire said it sold its stakes in General Dynamics Corp. and Archer-Daniels-Midland Co.

The $400 million CB&I investment indicates one of Buffett’s deputies, Ted Weschler or Todd Combs, made the purchase, since Buffett usually handles larger transactions.

Weschler and Combs have an incentive “to put that money to work” if they think there are opportunities to outperform the market, said David Kass of the University of Maryland. “Buffett wants his $20 billion rainy-day fund.”

This article includes material from Bloomberg News.

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

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