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Warren started right out with Qs and As.
want to get the shareholder mtgs done and soon we'll
be operating as one company.
Q how long deal
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
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
feel this will create a superior business
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
1/2 is PC in US
1/3 PC Global
life health 50/50 US/Global
Buffett is willing
to invest in people and territories GR is
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
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
See no downside.
Terrific mgmt at genre, I
will contribute by getting out of the way.
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,
Reins. may require months and years to make money, now
have oppty to expand this. In Japan, we haven't had a
WB: re global, sooner rather
than later, more rather than less.
Q: WB's role
in Gen Re?
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
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
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
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
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
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?
used stock a lot...
We rather use cash, but
normally sellers won't let us. It's not a market
Q: any conflicts w/ AIG
WB: no conflict, let's
not talk of my portfolio.
Q: any changes in
RF: no plans yet. we are wholesale
WB: quality over quantity is
important in this business.
RF: conceived and evaluated totally on
WB: let's go to phone
fantastic deal, at 14 times cash flow, great deal
there internal synergies, current reinsurance
WB: there are treaties, we buy GR business. We would
rather reinsure ourselves. GR will benefit from
RF: story is about demand synergies, not cost
Q:1put companies in perspective 2)why like
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?
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.
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.
$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
about $80B, in fact sheet, not in my mind. We hope it
Q: How does this effect Ajit?
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
Qwill this be the largest reinsur. in world?
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
WB: we have not looked at any of them. GR
is the one to do. We never contemplated any other.
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
focused on C, BH on Prop. was this intended for
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.
how did you arrive at intr. value
WB: at stock
deal look at what you give and get,
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
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.
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
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.
RF now that you have more capital how will this help
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.
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
WB: Charlie and me knew the business, we did it
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
Q regarding piggy bank
WB: expect competition.
we wanted to be hooked up with the best.
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
acctg, how long to amortize the goodwill, any tax
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.