Berkshire Hathaway 1999 Annual Meeting Audience Question # 34

Why Warren bought General Re

Warren Buffett:

OK, we’re going to be ready to go in just a minute if everybody gets their seats.

Voice from Audience:

Warren? Just want to double check something. We’re just going to stick in…

Warren Buffett:

One through eight.

Voice from Audience:

(this part of the audio is inaudible)

Warren Buffett:

One through eight.

Voice from Audience:

(this part of the audio is inaudible)

Warren Buffett:


We’ve got 6 or 7000, anyway, sticking around, I think.

OK. If anyone who has questions wants to go to the microphone, we’re going to start here in just a minute. And we will start… there will only be eight zones from this point forward, because we have everyone in attendance in the main hall. So we will rotate around eight zones. We’ll stay until about 3:30. And we’ll start in zone 1.

Audience Member:

My name is Charlie Sink. I’m from Lexington, North Carolina, as you can tell by the accent.

My question relates to the General Re purchase. I wondered… I’ve read your letters through the years and I’ve been trying to learn a little bit investing in insurance companies.

Did you buy General Re, mostly because… I know mostly because of the float… because you think you can grow the float? I know it’s not growing significantly now. Or did you buy it because you felt like you could do better with the investments?

I’ve read, also, that companies who seem to be trying to follow the Berkshire model are trying to get a certain amount of investments to equity… is that something that you focus on? That’s my question.

Warren Buffett:

Yeah. The first two parts are correct. We certainly… we don’t think the float will grow rapidly in the near-term future at all. The float changed, it actually declined very slightly in the first quarter.

And, at a level of 6 billion or so of premiums, the paid losses are likely to run at a rate that would cause the float to remain more or less steady. So it will take a period when premiums grow, for the float to grow.

And the premiums would have to grow fairly substantially to have any significant impact on the float. And like I say, that will not happen in the short term. We expect the float to grow over the longer term.

We expect that General Re will probably grow considerably faster in international markets than the domestic market.

We think that their reputation, which was a good as could be found, from an operational standpoint, from a technical standpoint, a managerial standpoint, will be further enhanced by Berkshire’s capital strength.

So we think their reputation is likely to grow over the years and we think the premium volume will follow, but not in any major way at all for a few years, at least.

And then we addressed earlier in the meeting, we think there is the opportunity to do better with that float from time to time in the future.

But right now that is not a plus that it’s in our hands, and it may not be a plus a year from now. We think at some point it will be a plus. We also pointed out in… that there are some… there could be some tax advantages to be included as part of Berkshire as well. So there’s some things going for it.

But none of them will have… they will not have an impact in 1999, and they may well not have an impact in 2000.

We obviously think Berkshire, 10 years from now, will be worth more on a per share basis with General Re included than if it were… than if we had not made the deal.

We don’t necessarily think that’s the case on a one-year or two-year basis. But it is our judgment on a 10-year basis.


Charlie Munger:

I would say that if we, in the future, do as… one-third as well with the new float that came to us with General Re as we’ve done on average in the past, it will work wonderfully.

If you take our past use of float in the history of this company, it would be an interesting study if anybody ever stretched it out.

Looking for an offline, PDF copy of all shareholder questions carefully arranged into specific topics such as How to properly evaluate a company for potential investment, Intelligent Investing and Secrets to achieving Success and Happiness? Click on the image below to learn more.

Q&A with Warren Buffett and Charlie Munger: A Compilation of All Shareholder Questions and Answers from The Berkshire Hathaway Annual Shareholder Meetings

Click here to return to the Q&A topic list. Alternatively, you can proceed to the next or go back to the previous question.

Don`t copy text!