Applied Underwriters Rating Downgraded

Applied Underwriters pending exit from the Berkshire Hathaway (NYSE: BRK.A) family of companies is having a negative impact on the credit ratings for its primary insurance companies – California Insurance Company, Continental Indemnity Company, Illinois Insurance Company, Texas Insurance Company and Pennsylvania Insurance Company. A.M. Best just downgraded the companies from an A+ rating to an A rating with negative implications.

Collectively, the insurance companies are in the North American Casualty Group. Best’s analyst say the downgrade was warranted because the companies are “no longer a strategic investment” for Berkshire Hathaway. Berkshire recently confirmed in a filing that it is selling the troubled Applied Underwriters unit to the Cayman Islands-based United Insurance Company. The sale is currently pending approval in California and other states, but is clouded by recent revelations that Insurance Commissioner Ricardo Lara accepted political contributions from individuals linked to Applied.

Best says NAC’s ratings will remain under review with the negative implications through the completion of the sale. It says the action reflects the “execution risk” of the deal. Best is continuing to monitor Applied’s risk-adjusted capitalization and operating performance.

Applied Underwriters was once but is no longer an affiliate of Berkshire Hathaway. Applied’s management bought it. Berkshire Hathaway bears no responsibility for any of the events which have transpired involving Applied Underwriters’ or its subsidiaries including California Insurance Company.