Berkshire Hathaway 1999 Annual Meeting Audience Question # 45

Why Berkshire is avoiding life insurance

Warren Buffett:

Zone 4.

Audience Member:

I’m David Levy from Newport Beach, California.

Berkshire has been investing in the property and casualty and reinsurance business.

I notice, except for annuities, you’ve been avoiding the life insurance business. Do you have… do you anticipate investing in the life insurance business?

Also, I have a second question, and that is the relationship of Berkshire A and Berkshire B. Last year there was a slight premium for Berkshire B over Berkshire A.

About now, Berkshire B is selling at about a 3 to 4 percent discount. I also notice that certain people are shorting Berkshire A and Berkshire B. I wonder if you could comment on that.

Warren Buffett:

Sure. On the life business, we have no bias against the life business, we just… we are in the life reinsurance business in a fairly significant way through General Re. As you mentioned, we’ve done a little on annuities.

The problem with the life business is that it isn’t very profitable… and you can look at the records of the big companies on that… and that a lot of the activity in the area is, in some way, equity-related.

And Charlie and I have never wanted to get in the business of managing equities for other people. I mean, we want our sole interest on equities to be Berkshire Hathaway itself. So, we do not want to wear two hats.

We would never go into the mutual fund management business or any kind of investment management business because, if we were to be managing 20 or $30 billion in the investment management business, and we get a good idea that we can put a billion dollars in, you know, whose money do we put in it?

So, we’d rather just be wearing one hat. And that we want that hat to be Berkshire Hathaway. And we don’t want to be promising other people that for, you know, half of one percent or one percent fee that they’re going to get our best ideas, because those ideas belong to Berkshire and we’d be misleading people if we promised otherwise.

So, anything that involves an equity component to it… and that’s a big part of what’s going on in the life business now… it’s just something we wouldn’t be comfortable being involved with.

If you look at term life insurance, we’ve looked at that, in terms of putting it on the internet. It’s… it is priced at rates that we find very hard, even with the absence of commissions, to make sense.

But it’s a business we understand. So, we’re… we’d be perfectly willing to be in the life insurance business if we thought there was… if we had a way of doing it where we thought there was reasonable profitability attached to it.

Charlie, do you want to comment on the life business before I get to the A versus B thing, or…

Charlie Munger:


We do those structured settlements. That is sort of like the annuity business. And the life business we’re doing is mostly annuities and on a very low-cost basis.

Warren Buffett:

Yeah. Anyone that wants to buy a non-equity-related annuity should go to our website and find, in terms of the… weighting for the safety of the product and everything, you’ll find a very, very competitive product because we…

It’s a low-cost operation. And if you’re buying it to get paid 30 years from now, you are certain to get paid from Berkshire and you’re not necessarily certain to get paid from various other entities. So, we’ve got a very competitive product there, but it’s not a big business.

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