A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating of A++ (Superior) and issuer credit rating of “aa+” of United States Liability Insurance Group (US Liability) (Wayne, PA) and its members. The ratings have been assigned a stable outlook. (See below for a detailed listing of the companies and ratings.)

On November 6, 2009, A.M. Best placed the ratings on all rated members of Berkshire Hathaway Inc. (Berkshire) [NYSE: BRK.A and BRK.B] under review with negative implications as a result of the Berkshire acquisition of the remaining 77% of Burlington Northern Santa Fe (BNSF) railroad, which was not already owned. The under review status reflected A.M. Best’s concerns regarding the potential utilization of Berkshire’s insurance and reinsurance operations as a funding source for the transaction given the size of the acquisition. Additionally, A.M. Best was concerned with the potential liquidity impact on some of the insurance and reinsurance operations given their exposure to high severity events. Based on a review of the group’s financial position as of December 31, 2009 and following the close of the BNSF acquisition, A.M. Best’s concerns have been largely mitigated or resolved.

The ratings reflect US Liability’s strong capitalization, outstanding long-term operating profitability and the advantages derived from management’s proven underwriting discipline. A.M. Best also recognizes the implicit and explicit financial support provided by its ultimate parent, Berkshire, and the added financial flexibility afforded by a Berkshire subsidiary as demonstrated in 2007.

As of January 1, 2007, each member of the group entered into a 50% loss portfolio transfer agreement and a 50% quota share reinsurance agreement with an affiliate, National Indemnity Company (Omaha, NE), an indirectly owned subsidiary of Berkshire. The effect of these transactions led to a substantial reduction in the group’s underwriting leverage, which then helped to facilitate the extraordinary stockholder dividend taken that year.

Offsetting these positive rating factors is US Liability’s high investment leverage exhibited by the level of unrealized gains and losses reported in 2008 and 2009 due to the global financial crisis, the asset concentration risk associated with a limited number of common stock holdings and multiple notes held by one issuer, and the group’s dependence on a single method of distribution source, the professional wholesaler. Notwithstanding, the rating outlook reflects the group’s strong risk-adjusted capitalization, outstanding historic operating profitability and favorable near-term and long-term prospects.

The FSR of A++ (Superior) and ICRs of “aa+” have been affirmed for United States Liability Insurance Group and its following members:

  • Mount Vernon Fire Insurance Company
  • U.S. Underwriters Insurance Company
  • United States Liability Insurance Company

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at

www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.