Berkshire Hathaway 2002 Annual Meeting Audience Question # 32

In investing and insurance business, it doesn’t make any difference where you’re located

Warren Buffett:

Number 9, please.

Audience Member:

Good afternoon. I’d like to get back to the basics and talk about the insurance side, which is the core of Berkshire.

In ’98, when we bought Gen Re, they had a Lloyd’s syndicate, DP Mann, now known as Faraday. In addition, in 2000, we bought the Marlborough Agency.

I’d like to get your perspective on what you see is happening at Lloyd’s and their future, as well as our commitment to the Lloyd’s market.

Warren Buffett:

Yeah, well, we do have what is now known as the Faraday syndicate. And actually, our takedown of their capacity, which I think was maybe, I don’t know, in the area of 30 percent a few years back, is now well into the mid-90s percent.

So, we, in effect, have a much larger commitment, through Faraday, to the London market. And I would think we would do pretty well with that commitment.

But in the end it really doesn’t make any difference whether you’re in London or whether you’re in Washington, as GEICO is, or whether you’re in… I mean, actually, for a while, Ajit lived here in Omaha, or whether, you know, you… it really depends…because you’re… it’s a worldwide market.

You’re going to see things… assuming that you have a reputation for paying claims and for having the capital to do things, and being willing to act… you’re going to see things every place in the world.

It’s really like investing. I mean, you can invest, whether you’re in London or Omaha or New York. It doesn’t make any difference where you’re located.

What counts is the ability to, and the discipline, to look at thousands of different things and select from them a group to do, because you can do anything in the world in insurance.

I mean, we could write tens of billions of premiums in, you know, in a month if we just opened the floodgates, but it’s out there.

There’s lots of business out there. There’s lots of investment opportunities… or investment choices… out there. And the question is, is what you say yes to and what you say no to.

And that should be determined by what you are able to evaluate and, in the case of insurance, even if they’re attractive, preventing an aggregation risk that could cause you major embarrassment at some time.

But we don’t have any… we don’t specifically think the London market is better than the U.S. being domiciled in the U.S…. or vice versa. And as you know, we have an operation domiciled in Germany. And that isn’t the key to it.

You know, the key is having people making decisions daily where they accept risks they understand and that are properly priced, and avoiding undue aggregation, and the occasional problem, in terms of dealing with people that are less than honest.

But the first two items are the important ones day in and day out. And that can be done at Lloyd’s, it can be done at Omaha.

I mean, National Indemnity did not have any great geographical advantage in sitting at 30th and Harney, but it’s done very well, just in its primary business, ever since Jack Ringwalt founded it in 1941, or whatever year it was.

I mean, it… and Jack Ringwalt… some of you here may have known him… Jack Ringwalt… a very good friend of mine… but Jack Ringwalt was not an insurance genius.

And he never, you know, my guess is he never looked at an actuarial book in his life or even thought about it. But he just was an intelligent fellow who had enough sense to do… to stick with what he understood in virtually all cases, and to make sure that he got paid appropriately for the risk he was taking.

And he beat the pants off, you know, people that had been around for a hundred years in Hartford, who you know, had vast agency organizations and huge amounts of capital and actuaries and all kinds, you know, all kinds of data and everything.

But they didn’t have the discipline that he had. And that’s what it’s all about.

So, I don’t really relate it to geography. I would like to be exposed to as much business in the world as possible and have that exposure be manifested through people that have the disciplines I talked about.

And if we can see everything that takes place in the world, and people want to come to us for one reason or another, often because of our capital position or our willingness to take on volatility…

If those people come to us, wherever they come to us, and the people that they… who represent us use the guidelines we’ve talked about, we’ll do very well.

And you know, the more places they have to intersect with us, as far as I’m concerned, as long as that intersection takes place with people who have that discipline.

Charlie?

Charlie Munger:

Yeah, the insurance business is a lot like the investment business at Berkshire.

If you combine a vast exposure with a vast decline rate, you have an opportunity to make quite a few good decisions.

Warren Buffett:

And I think we’re making them now. You can check on me next year on that.

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