NU Online News Service, Nov. 6, 2:59 p.m.EST

A.M. Best said concerns about Berkshire Hathaway Inc.'s plans tobuy Burlington Northern Santa Fe railroad have led it to put thecompany's insurance subsidiaries' ratings under review.

Best said the financial strength ratings and issuer creditratings of the domestic and international property and casualty andlife and health subsidiaries of Omaha, Neb.-based Berkshire wereall under review with negative implications.

The rating agency's action follows the announcement yesterday byFitch Ratings that it had placed Berkshire on Rating Watch Negativewith similar concern as those expressed by Best. On WednesdayStandard & Poor's put the firm on CreditWatch with negativeimplications.

Only Moody's Investors Service, in a move on Tuesday, hasreacted positively to the Burlington Northern Purchase. Moody'saffirmed the Aa2 (Excellent) long-term issuer rating of Berkshireand the Aa1 insurance financial strength ratings of its flagshipreinsurance companies, National Indemnity Company and ColumbiaInsurance Company.

Best said financial strength ratings of "A-double-plus"(superior) and issuer credit ratings of "triple-a" of NationalIndemnity Group and GEICO and their members were under review withnegative implications.

Best also placed FSRs of "A-double- plus," and ICRs of"double-a-plus" of General Re Group and its members, under reviewwith negative implications.

The rating firm noted that the transaction is valued at $44billion and included the assumption of $10 billion of BurlingtonNorthern debt.

Best said its action reflects concerns over utilization ofBerkshire's "insurance and reinsurance operations as a fundingsource for this transaction."

Additionally, Best said it is concerned with the liquidity andconcentration risk pertaining to a single large investment as asubstantial portion of Berkshire's portfolio, noting the majorityof Berkshire's equity investments "are held at the insurance andreinsurance entities."

The company said it will assess the under-review status over thenear term as more details regarding the capitalization andliquidity of the insurance and reinsurance operations is presentedby management.

S&P said the Berkshire insurance operations over the past 12months have been buyers of the company's investments in GoldmanSachs, General Electric Co., WM. Wrigley Jr. Co., and Swiss Re.

"These large investments have attractive coupons and areboosting investment income, but have also increased the exposure ofthe insurance companies' statutory capital to equities andspeculative-grade bonds," said S&P.

It said the investments have also reduced insurance companyliquidity, as Berkshire primarily paid for them with cash andshort-term investments and not from the sale of longer-terminvestments.

Berkshire's insurance companies already own a substantial amountof Burlington Northern stock, so any further share purchases willincrease the concentration risk associated with having asubstantial portion of invested assets in securities of onecompany, S&P found

In April, before Tuesday's action, Moody's downgraded Berkshirefrom its top "Aaa" rating, and Fitch reduced Berkshire to"double-A-plus" from "triple-A" in March.

According to Moody's, the railroad purchase would enhanceBerkshire's earnings and cash flows, while further diversifying theportfolio of owned businesses."

Moody's did say that, near term, the transaction would reduceBerkshire's financial flexibility, given that a majority of theconsideration would be in cash. But it took the view that Berkshirewill maintain a large cash balance and a conservative financialprofile, consistent with its long-standing practice.

In July, Berkshire Hathaway, the largest Moody's shareholder,said it had reduced its stake to 16.98 percent from 20.4percent.