The ratings agency Standard & Poor’s (S&P) has downgraded credit rating of Warren Buffett’s Berkshire Hathaway from AA+ to AA, citing the conglomerate holding company’s over dependence on its insurance operations for dividend income.
The agency’s downgrading is seen as a major setback for billionaire investor Warren Buffett, who built $277bn worth of businesses around an insurance firm.
Apart from the management succession plan at Berkshire Hathaway, S&P highlighted Warren Buffett’s preference for large stock holdings in a small number of companies, and huge contribution to earnings of the company’s railroad business Burlington Northern Santa Fe as long-term risk factors.
Burlington Northern Santa Fe is currently the only noninsurance subsidiary company.
Eric Hedman of S&P’s insurance ratings told the Financial Times that “what that means is that they have a very unique individual, Warren Buffett, who continues to run the company”.
The ratings agency further added that Berkshire Hathaway has very strong financial risk profile.
Earlier this month, Buffett said that the company’s board had found his successor.
Rodney Clark, managing director of insurance ratings at S&P, told the Wall Street Journal that the ratings firm wanted to make it clear that the cut didn't result "from a deterioration of Berkshire or its performance. That's not the case.”
The rating is likely to have marginal effect on Berkshire Hathaway in the near future.
Berkshire Hathaway, which oversees and manages several subsidiary companies, has cash reserves of $49bn.