Warren Buffett's Berkshire Hathaway Inc
The rating was cut to "AA" from "AA-plus," and S&P assigned a "negative" outlook, suggesting another cut could occur within a few years. S&P left its credit and financial strength ratings for Berkshire's insurance operating units at "AA-plus."
Thursday's 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 view of Berkshire's dependence on its core insurance operations for most of its dividend income," S&P analyst John Iten wrote.
Jeff Matthews, a Berkshire shareholder who has written books about 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 and claims are paid, they provide to help Berkshire invest.
"Which would S&P rather have, a lousy insurance underwriter with 'non-volatile' investments, or a world-class insurance underwriter with world-class, if sometimes 'volatile,' investments?" he asked.
Berkshire was rated "triple-A" by Moody's and S&P as recently as 2009. It lost the ratings after the global financial crisis boosted potential liabilities, and Buffett bought the railroad Burlington Northern Santa Fe Corp for $26.5 billion.
S&P said that while Berkshire retains a "very strong financial risk profile," with noninsurance operations generating a majority of operating profit, only Burlington Northern provides a significant portion of total dividends paid by those operating companies to the parent holding company.
Other negative factors cited by S&P include Berkshire's "high tolerance" for equity investments, which totaled $95.9 billion as of March 31 and can add capital volatility, and Berkshire's eventual need to replace the 82-year-old Buffett.
At Berkshire's annual meeting on May 4, Buffett said the company's board was "solidly in agreement" on an unnamed internal executive to step in as chief executive if needed.
Berkshire has said it plans to install other people as chief investment officer, and Buffett's son Howard as non-executive chairman. Warren Buffett holds the CIO and chairman roles.
S&P's outlook stems from a ratings cap for financial companies linked to the United States' "AA-plus" rating, as well as capital risks at the insurance units, especially if they were to add 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 sold last week rose 1.2 cents on the dollar to 99.7 cents, according to bond pricing service Trace.
In Thursday trading, Berkshire Class A shares closed down $1,637 at $167,303, and Class B shares fell $1.23 to $111.54.
(Reporting By Jennifer Ablan, Ben Berkowitz, Dan Burns and Jonathan Stempel; Editing by Gerald E. McCormick, Maureen Bavdek and Carol Bishopric)