Ratings Recap: Business Alliance, Berkshire Hathaway, Pathfinder, Trinity Universal, Assured Guaranty

December 17, 2007

A.M. Best Co. has downgraded the financial strength rating to ‘B’ (Fair) from ‘B++’ (Good) and issuer credit rating to “bb” from “bbb” of Business Alliance Insurance Company (BAIC) of San Bruno, Calif. Best also removed the ratings from under review with negative implications and assigned a negative outlook. The downgrades reflect the bankruptcy filing of BAIC’ s immediate parent, National Farm Financial Corporation (NFFC), also of San Bruno, Calif. It filed for Chapter 11 bankruptcy protection in federal court on December 5, 2007. “The filing for protection is in response to an October 4, 2007 legal judgment against BAIC, NFFC and the group’ s principal controlling shareholder (all joint and several),” Best explained. “The judgment, which relates to an unsuccessful attempt by Public Service Mutual Holding Corporation (PSMHC) (New York, NY), an intermediate holding company, ultimately owned by Public Service Mutual Insurance Company, to acquire BAIC. The judgment calls for a large payment in damages to PSMHC. Should this judgment ultimately be enforced, it is likely that BAIC could become impaired and require the intervention of the California Department of Insurance.”

Fitch Ratings has affirmed its Issuer Default Ratings (IDR) on Berkshire Hathaway, Inc. (BRK), as well as its ratings on BRK’s senior unsecured notes, and its Insurer Financial Strength (IFS) ratings on BRK’s insurance subsidiaries. Fitch also revised its rating outlook to stable from negative. Fitch said its ratings on Berkshire and its subsidiaries “continue to reflect the organization’s very strong capitalization and liquidity, conservative operating strategies, and excellent competitive positioning in key insurance markets. The ratings also reflect a material amount of earnings volatility due to the large portion of the company’s earnings derived from (re)insurance subsidiaries. The outlook revision reflects Fitch’s view, that, “while BRK continues to be exposed to very high ‘key man’ risk that threatens the company’s long-time financial and operating strategies, the duration over which this risk is likely to manifest itself is uncertain and may exceed the 12-24 month horizon typically covered by the agency’s rating outlook.” Fitch also expressed “concerns about investigations by the New York Attorney General’s office and the SEC into non-traditional or loss mitigation insurance products sold by BRK’s insurance subsidiaries, as well as a leveling of debt issued by BRK’s finance subsidiaries to fund finance subsidiaries.”

A.M. Best Co. has assigned an issuer credit rating of “a-“and has affirmed the financial strength rating of ‘A-‘ (Excellent) of Pathfinder Insurance Company of Denver, Colo. with a stable outlook. “The ratings reflect Pathfinder’s strong capitalization, conservative leverage and operating strategies and historically high profitability. Partially offsetting these positive rating factors are the company’s limited scope of business and its dependence on its ultimate parent, Avis Budget Group Inc. for business generation.”

Standard & Poor’s Ratings Services announced it will withdraw its ‘A’ financial strength rating on Milwaukee Casualty Insurance Co., Security National Insurance Co., and Trinity Universal Insurance Co. of Kansas Inc., all subsidiaries of Trinity Universal Insurance Co. of Texas, upon the closing of the sale of these subsidiaries to AmTrust Financial Services Inc. (AFSI). The current ratings on these subsidiaries are dependent on a pooling agreement with Trinity.

Fitch Ratings has affirmed the following ratings on Assured Guaranty Ltd. (AGL) and its related entities: Assured Guaranty Corp. and Assured Guaranty (UK) Ltd. – Insurer financial strength (IFS) at ‘AAA’. Assured Guaranty Re Ltd., Assured Guaranty Re Overseas Ltd. and Assured Guaranty Re Mortgage Insurance Company – IFS at ‘AA’. Assured Guaranty Ltd. – $200 million of 7.0 percent senior notes due 2034 ‘A+’; – $150 million series A enhanced junior subordinated debentures ‘A’. The outlook on all of these ratings is stable. Fitch’s affirmation of AGL’s ratings is based on the company’s “disciplined underwriting strategy exemplified by minimal exposure to higher-risk structured finance collateralized debt obligations (SF CDO’s), improving financial results and sufficient excess capital for its given rating,” said the announcement.

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