Warren Buffett's Berkshire Hathaway Inc. had its credit ratingcut one notch by Standard & Poor's, which cited a newmethodology for evaluating insurers and Berkshire's dependence onits insurance business for dividend income.

The rating was cut to “AA” from “AA-plus,” and S&P assigneda “negative” outlook, suggesting another cut could occur within afew years. S&P left its credit and financial strength ratingsfor Berkshire's insurance operating units at “AA-plus.”

The May 16 downgrade brings S&P's rating in line with the“Aa2″ rating that Berkshire holds from Moody's Investors Service.Those ratings are the agencies' third-highest.

“The lower credit rating on Berkshire better reflects our viewof Berkshire's dependence on its core insurance operations for mostof its dividend income,” S&P analyst John Iten wrote.

Jeff Matthews, a Berkshire shareholder who has written booksabout the company, said S&P's concerns appeared overblown,citing the insurance units' profitability and the $73 billion of“float,” or money held between when policyholders make payments andclaims are paid, they provide to help Berkshire invest.

“Which would S&P rather have, a lousy insurance underwriterwith 'non-volatile' investments, or a world-class insuranceunderwriter with world-class, if sometimes 'volatile,'investments?” he asked.

Berkshire was rated “triple-A” by Moody's and S&P asrecently as 2009. It lost the ratings after the global financialcrisis boosted potential liabilities, and Buffett bought therailroad Burlington Northern Santa Fe Corp for $26.5 billion.

S&P said that while Berkshire retains a “very strongfinancial risk profile,” with noninsurance operations generating amajority of operating profit, only Burlington Northern provides asignificant portion of total dividends paid by those operatingcompanies to the parent holding company.

Other negative factors cited by S&P include Berkshire's“high tolerance” for equity investments, which totaled $95.9billion as of March 31 and can add capital volatility, andBerkshire's eventual need to replace the 82-year-old Buffett.

At Berkshire's annual meeting on May 4, Buffett said thecompany's board was “solidly in agreement” on an unnamed internalexecutive to step in as chief executive if needed.

Berkshire has said it plans to install other people as chiefinvestment officer, and Buffett's son Howard as non-executivechairman. Warren Buffett holds the CIO and chairman roles.

S&P's outlook stems from a ratings cap for financialcompanies linked to the United States' “AA-plus” rating, as well ascapital risks at the insurance units, especially if they were toadd investment risk exposure or fund a large acquisition.

The S&P downgrade had no effect on Berkshire's bond prices.The 4.3 percent bonds maturing in 2043 that a finance unit soldlast week rose 1.2 cents on the dollar to 99.7 cents, according tobond pricing service Trace.

In Thursday trading, Berkshire Class A shares closed down $1,637at $167,303, and Class B shares fell $1.23 to $111.54.