NU Online News Service, March 25, 12:42 p.m.EDT

Standard & Poor's Ratings Services, citing reduced capitallevels, said yesterday that it has revised its outlook on BerkshireHathaway Inc. to negative from stable.

The company action also affected Berkshire Hathaway FinanceCorp. and Berkshire's core insurance companies, including BerkshireHathaway Assurance Corp.

Standard & Poor's said that it affirmed all of its ratingson these companies, including its "triple-A"/"A1-plus" counterpartycredit rating on Berkshire.

Impacted by its derivative contract investments, Berkshire inthe 2008 fourth quarter saw profits fall 96 percent and net worthdrop by $10.9 billon. On March 13 Fitch dropped its rating from"triple-A" to "double-A-plus."

Standard & Poor's credit analyst John Iten wrote, "Thedecline in equity values in 2009 has reduced the statutory capitalof the insurance operations, and a preliminary analysis of thegroup's capital adequacy indicates that the group's capital is nolonger redundant at the 'AAA' level."

He noted that in December 2008, S&P had said it wouldconsider revising the outlook to negative "if capital marketscontinued to deteriorate, investment-related losses reduced capitalbelow the 'AAA' level, and Berkshire was not able to rebuildcapital back up to that level within a reasonable time..."

"At year-end 2008, the capital adequacy of Berkshire's insuranceoperations was significantly lower than it was one year earlier,but it was still appropriate for the rating," Mr. Itencontinued.

S&P said the time horizon for the outlook is 12 months. Therating service said it could revise the outlook back to stable if anumber of things occurred.

It mentioned stabilization or improvement in value of thegroup's equity investment holdings or a likelihood that the companywill be able to rebuild capital back to a level commensurate withthe current ratings within a reasonable period of time (typicallyone to two years) through earnings or other means.

S&P said it will also take into account any steps Berkshiremight take to mitigate volatility of its statutory capital. But itwarned it could lower ratings "if continued substantialdeterioration in the equity markets hurts capital further, or if itappears that the insurance group will not be able to restorecapital back to the 'AAA' level through earnings or through capitalcontributions from Berkshire's noninsurance operations or externalsources."

However, S&P said it does not currently anticipate that anypossible downgrade of the insurance company ratings would be bymore than one notch.

S&P said there is currently no difference between theholding and operating company ratings because of the substantialamount of earnings and cash flow available from the company'snoninsurance affiliates.

"If we were to downgrade the holding company, we could eitherlower the holding company rating by the same amount as theoperating company ratings or begin to differentiate between theseratings. If this occurs, we do not currently anticipate that theholding company rating would be more than one or two notches belowthe operating company rating," the firm said.