Berkshire Hathaway’s Warren Buffett spent a large portion of his 50th anniversary investor letter talking up his vast insurance and reinsurance operations, but called the company’s life reinsurance book and the start-up focused on commercial insurance for a special nod.
Buffett said that while General Re’s performance after it’s 1998 acquisition had given him pause, the life reinsurance unit’s performance is producing significant float and profits.
“We are particularly enthusiastic about General Re’s international life reinsurance business, which has grown consistently and profitably since we acquired the company in 1998,” Buffett said in his annual letter released Saturday. “It can be remembered that soon after we purchased General Re, it was beset by problems that caused commentators – and me as well, briefly – to believe I had made a huge mistake. That day is long gone. General Re is now a gem.”
After being acquired by Berkshire, Gen Re quickly found itself at the center of financial and accounting issues tied to the 2008 financial crisis and reinsurance contract tied to AIG.
Separately, Buffett said that the formation of Berkshire Hathaway Specialty Insurance (BHSI) in 2013 to attack commercial risks is seeing significant gains.
“This initiative took us into commercial insurance, where we were instantly welcomed by both major insurance brokers and corporate risk managers throughout America. Previously, we had written only a few specialized lines of commercial insurance,” he said in the letter. “We repeat last year’s prediction that BHSI will be a major asset for Berkshire, one that will generate volume in the billions within a few years.”
BHSI was created in 2013 when former AIG executive Peter Eastwood joined the Omaha-based company in an effort to enter the commercial insurance business “big time,” Buffett said.
The success for both BHSI and Gen Re were attributed to the “idea factory” of Berkshire Hathaway Reinsurance Group Chairman Ajit Jain, Buffett said, adding that he “insures risks that no one else has the desire or the capital to take on.”
While promoting his insurance and reinsurance business in much anticipated letter. Buffett also spent a great deal of ink questioning the underwriting decisions of competitors. He focused primarily on the insurance and reinsurance industry’s inability to “walk away if the appropriate premium can’t be obtained.”
“They simply can’t turn their back on business that is being eagerly written by their competitors. That old line, “The other guy is doing it, so we must as well,” spells trouble in any business, but in none more so than insurance,” Buffet explained.
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