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Berkshire Hathaway Inc. Message Board

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  • gmulaw gmulaw Jun 21, 1998 2:52 PM Flag

    Next Level for BRK??

    9 advances 30 seconds,8 pauses, 7 rewinds 30
    seconds.

    Warren started right out with Qs and As.

    WB: we
    want to get the shareholder mtgs done and soon we'll
    be operating as one company.

    Q how long deal
    in works?
    WB: Ron is better on chronology. Spoke
    before Salomon Travelers, July September 1997 had
    spoken, but didn't look good at the time,...started again
    later.
    known each other for decades, great relationship, know
    each other well.
    Couldn't be better deal than it is
    today for both.
    Brings strengths of 2 orgs together
    that has to

    Q What happened?
    WB:1 year ago
    it couldn't, 1mo ago, I felt it could be done
    without hurting BRK SH's

    Q: synergies?
    RF: we
    feel this will create a superior business
    model.
    synergies:willingness of BH with enormous size, underwrite, stand
    behind General RE, facing demand for larger and larger
    underwriting from our clients.
    Capital efficiencies from
    having a reins. co. owned by BRK.
    Global company all
    over world
    1/2 is PC in US
    1/3 PC Global
    1/3
    life health 50/50 US/Global

    Buffett is willing
    to invest in people and territories GR is
    in.

    BH generates big capital, Gen Re is permitted to
    invest in deals from this stream.

    WB has long
    followed reinsurance business, the kind of owner we want,
    takes LT view, which suits reins. business. Takes on LT
    liability.

    WB: Both companies will write significantly more
    business, and retain it . Abundance of capital that BH
    brings to party permits doing anything we want, unusual
    in insurance business. Flexibility vs. strictures of
    capital common in insurance industry is great
    benefit.

    See no downside.

    Terrific mgmt at genre, I
    will contribute by getting out of the way.

    Q:
    Strategy in Asian
    RF:We are in offices in Singapore,
    HK, Beijing, New Zealand, Australia. Strategy is put
    more people on ground.
    We can invest more,
    LT.
    Reins. may require months and years to make money, now
    have oppty to expand this. In Japan, we haven't had a
    good presence.

    WB: re global, sooner rather
    than later, more rather than less.

    Q: WB's role
    in Gen Re?
    2 jobs
    1)allocate capital 2)get
    people motivated to jump out of bed.
    We will add $24B
    to investments, 20% to shares outstanding, STILL 12
    people in Omaha. All operating decisions will be made as
    they have been. Investments of domestic operation will
    be from Omaha.
    Q: advantages of stock v. cash
    deal?
    WB: create insurance enterprise with more policy
    holder surplus than any in world and largest GAAP
    networth of any company in US. Using stock, not a dime of
    equity leaves the combined enterprises, big advantage to
    insurance companies.
    RF: elaborating, combined company
    has largest networth, in world, Royal Dutch
    (something to shoot for). We were very eager to have a STOCK
    deal. BofDof Gen Re almost required
    it.

    Q:1specific as to business you had to turn down before, 2
    what old exchange ratio?
    WB: 2) no ratio last year,
    couldn't make a deal at that time.first numbers were early
    may
    1)regarding retention, gen re distribution system sees
    business, a first choice among many in world. would come to
    national indemnity, BH and ask us if we wanted some of it.
    Now they can take it all.
    BF: we didn't turn down
    as much as not be able to take as much as we'd
    like.
    WB: State farm follows same policy. BH if we want to
    do it, we will write it all. Now GR can see even
    more of this, big difference over time.
    Q: is use
    of stock signal of peak of your stock?
    WB:we have
    used stock a lot...
    We rather use cash, but
    normally sellers won't let us. It's not a market
    call.
    Q: any conflicts w/ AIG
    WB: no conflict, let's
    not talk of my portfolio.
    Q: any changes in
    employment levels?
    RF: no plans yet. we are wholesale
    financial business.w
    WB: quality over quantity is
    important in this business.
    Q

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Q?
      RF: conceived and evaluated totally on
      strategic values.
      WB: let's go to phone
      Q:congrats,
      fantastic deal, at 14 times cash flow, great deal
      are
      there internal synergies, current reinsurance
      treaties?
      WB: there are treaties, we buy GR business. We would
      rather reinsure ourselves. GR will benefit from
      it.
      RF: story is about demand synergies, not cost
      synergies
      Q:1put companies in perspective 2)why like
      reinsur.
      WB: GR does $6B BH $150M for CA, some big ones. We
      expect volume to fall off. GR has thousands of treaties,
      100s of clients, different business, our volume will
      fall off, theirs won't. I like reins. a lot. It is our
      kind of business. BH doesn't have the worldwide
      reputation they have. GR has the skills. I did some 20 years
      ago, and still have the scars.
      RF:in reins. for
      long time, since 1846 through Cologne Germany, under
      BH even better.
      Q: Is HK a market of plan?
      RF:
      HK is important office, full service, serve clients
      there and in surrounding areas. The economic problems
      in Asia have not had big effects on Property
      Casualty PC business. We are bullish on the region.
      WB:
      we won't let current economic business slow us down
      anywhere. See's doesn't sell much candy in July, but we
      stay inbusiness for other months. if you want to be
      there 10 years from now, the time to get there is now,
      and with the best people you can find.
      Q: adding
      $24B in investments from GR portfolio, what is mix of
      equ & bond?
      WB: $5B in common and balance in
      fixed, biggest category in municipal bonds. We will make
      changes. Whatever strategy of Nat'l Ind and BH will be the
      strategy of domestic, but Cologne will do its own thing
      for at least considerable time (GR doesn't fully own
      Cologne).
      about $80B, in fact sheet, not in my mind. We hope it
      gets bigger.
      Q: How does this effect Ajit?
      WB:
      Ajit has run SCat and others and participates with GR,
      he knows about this deal and is excited about it.
      Each of our companies go their own way, Ajit will
      continue to do his own business, in his own area, there is
      little overlap, and he is a fantastic asset to
      BH.
      Qwill this be the largest reinsur. in world?
      RF: GR
      is largest in US, 3rd in world, adding BH, won't
      materially change this as to REVENUE
      WB: as to insurance
      capital, it WILL be the largest.
      Q:congrats. 1) what %
      of BH will GR own? WB: 18%
      2)are you looking at
      American Re
      WB: we have not looked at any of them. GR
      is the one to do. We never contemplated any other.

      • 1 Reply to gmulaw
      • Q: does WB see a potential play
        WB: no we
        never buy for cyclical pays, we only buy for forever
        and do it when it looks to be a good deal
        Q:GR is
        focused on C, BH on Prop. was this intended for
        diversification?
        WB: we have enough capital we don't need divers., but
        what you say regarding the mix is true. we want to
        make lots of money at BH, not generate divers.
        Q:
        how did you arrive at intr. value
        WB: at stock
        deal look at what you give and get,
        we thought
        with the enhanced value we'd use stock. It req'd the
        syn +'s we discussed. We are trading away a big
        portion of our interest in OUR companies, I wouldn't do
        this lightly, but for the fact I see significant value
        from the deal.

        Q:are you paying with newly
        issued stock? yes, we'll have sh mtg
        2)how is GR
        insurance different?
        RF: differences are 1)global 2)all
        insurance, LHPC, 3)are in relationship business, longterm
        4)BH is more like an opportunistic business model,
        both can run
        5)both WILL run independently, Chinese
        wall between to safeguard client information and
        confidences of LT relation

        Q:if you had trouble
        investing your old float, how will you manage to find
        investments for that plus $24B?
        WBit won't make me
        smarter, there will be much to handle, someime in future
        we will have ideas, and we'll deploy it. It is not
        intended to get more capital for a current oppty, it is
        done for future opptys in 5,10, 20 years.

        Q:
        float
        WB: GR brings huge float, and can develop it. We
        think BH can help increase it's growth, I can't put a
        number on that growth. If you add in more extensive
        expansion plans, ability to retain more bus, add on add'l
        things we can bring to clients, we together will make
        big diff.
        Q:any specific sectors of ins. bus.

        WB: we have a great business at Geico, we like that
        business. Geico has grown significantly faster. Tony runs
        that, we free him up. He can do what ever he wants to
        grow earnings. Growth rate of policies is accelerated.
        Tony gets his own ideas, I don't give him any. we like
        that business. We want GR to operate the same.
        Q:
        RF now that you have more capital how will this help
        you?
        RF: we will keep our same underwriting
        culture/standards, it is nice to have much capital below you when
        you want to sign deals.
        WB: I have no worries
        that GR willchange it's culture in the presence of a
        big piggy bank. With others I would.
        Q: IB's
        involved?
        RF: GR had LT relation with Goldman Sachs.
        Idea came from us, but GS was helpful to Board in
        evaluating, but this was principal to principal, one on
        one.
        WB: Charlie and me knew the business, we did it
        ourselves.
        Q:
        WB: we love the distribution operation of GR. GR is
        very successful that way, others operate through
        brokers, I like the idea of controlling your own
        distr.
        Q regarding piggy bank
        WB: expect competition.
        we wanted to be hooked up with the best.
        RF:
        there has been securitization deals, there will be, but
        I don't see it today as becoming a big market, but
        we can always do this in the future to package risk
        and offload volatility and risk, now put me in
        skeptical column, checking the weather
        Q:with purchase
        acctg, how long to amortize the goodwill, any tax
        benefits
        WB: we get Good will for accounting purposes,
        we will over std 40 year period. reasonable chance
        50/50 that when FASB revisits they may have a change of
        mind, but it makes no difference to us. We will put up
        14-15B of goodwill, 350-400M/year. we look at the
        economics of the deal, not how we write it off.

 
BRK-A
224,184.00+433.00(+0.19%)Jan 26 4:03 PMEST

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