Berkshire Hathaway 2013 Annual Meeting Audience Question # 5

The recent actions of Ajit Jain to help Berkshire acquire a broader share of the insurance market

Warren Buffett:

OK. We have Cliff Gallant from Nomura who will ask insurance-related questions for this meeting.

Cliff Gallant:

Thank you.

At Berkshire Hathaway Reinsurance group, Mr. Ajit Jain appears to be employing a new strategy recently with some high profile actions.

Berkshire signed a portfolio underwriting arrangement with Aon to do business with Lloyd’s.

And then last week, there was the hiring of several AIG executives.

It appears that Berkshire may be taking a broader share of the market.

What is the goal of these moves, and won’t these actions eventually produce more average results?

Warren Buffett:

Well, you… the goal is to take a greater share of the market.

There have been two important moves made by Ajit’s operation in the last month or so.
One is the… the first one that was announced… was this participation of 7 1/2 percent in all of the business.

Originally, it was announced as applying to the Lloyd’s market. I believe it’s been extended to the entire London market.

And, now, bear in mind that the people that are insured still have the right to pick who their insurers shall be, so it isn’t totally automatic that we receive 7 1/2 percent of every slip.

But we had had an arrangement for a couple of years with Marsh on a marine book and perhaps some other areas, but not across the board.

And we think that… we think that the profit possibilities are reasonable for that business, or we wouldn’t have entered into it.

It will give us more of a cross-section of business than we’ve been used to having, but it doesn’t mean that we give up our present business at all, either.

The second item you mentioned is just in the last week or thereabouts. It was announced that four pretty well-known insurance people that had been with AIG had joined us to write, primarily, commercial insurance, initially domestically, perhaps, but around the world.

And these are people that reached out to Berkshire. In the case of at least one of them, even reached out a number of times in the past.

But we were ready to enter this field with these people who were very able people. We’ve had a number of people reach out since the announcement was made only a week or so ago.

So I think you will see Berkshire, in addition to all of the other insurance businesses that has had over the years, I think you’ll see us become a very significant factor, worldwide, in the commercial insurance business.

I mean, it could be business that reaches into the billions. In fact, I would hope that it would… it could be… you know, a fair number of billions over time.

And we’ve got the right people. We’ve got capital like nobody else has. We have the ability to sign on to coverages that other people have to spread out among others.

So, I think we’re ideally situated to go into this business, and I’m looking forward to it.


Charlie Munger:

Well, generally speaking, I don’t think the reinsurance business is a very good business for most people.

And I think it’s a very desirable part of Berkshire’s business, the way it’s run, but it’s different from something like the other businesses, which would work pretty well if somebody else owned them.

I think our reinsurance business under Ajit is very peculiar, and other people who think it’s easy are going to find out that it isn’t.

Warren Buffett:

Yeah. And I should point out, this commercial insurance business also, I mean, it will be primary insurance. The Aon arrangement is a reinsurance arrangement, but we will be in the primary business.

So, it will be large commercial risks, but there’s a lot of premium buy-in there, and there’s a lot of chances to make mistakes.

But I’d rather have the group we have overseeing that business than any other group I can think of.

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