S&P’s downgrades outlook on Berkshire Hathaway to negative

Standard & Poor’s Ratings Services has revised its outlook on Berkshire Hathaway Inc. (Berkshire), Berkshire Hathaway Finance Corp., and Berkshire’s core insurance companies, including Berkshire Hathaway Assurance Corp., to negative from stable.

The ratings agency also said it affirmed all of its ratings on these companies, including its ‘AAA/A-1+’ counterparty credit rating on Berkshire.

“The decline in equity values in 2009 has reduced the statutory capital of the insurance operations, and a preliminary analysis of the group’s capital adequacy indicates that the group’s capital is no longer redundant at the ‘AAA’ level,” John Iten, Standard & Poor’s credit analyst, said in a release.

In December 2008, S&P’s said that it would consider revising the outlook to negative if capital markets continued to deteriorate, investment-related losses reduced capital below the ‘AAA’ level, and Berkshire was not able to rebuild capital back up to that level within a reasonable time frame, according to the release.

At year-end, the capital adequacy of Berkshire’s insurance operations was significantly lower than a year earlier, but still appropriate for the rating, the release adds.

“The time horizon for the outlook is 12 months. If the value of the group’s substantial equity investment holdings were to stabilize or improve during this period, or if it appears that the group will be able to rebuild its capital position back to a level commensurate with the current ratings within a reasonable period of time (typically one to two years) through earnings or other means, we could revise the outlook back to stable,” the ratings agency notes.