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Berkshire Hathaway Inc. Message Board

  • xcv50 xcv50 Mar 7, 1999 6:41 PM Flag

    Berkshire subsidary General/Cologne Re l

    And nobody care to read the news. General Re is
    not doing a good job at all.

    If General Re is
    still an independent company, such a big lost will end
    up with numerous major downgrades and trade 15-20%
    down to $170-180. This implies BRK's value =
    170*285.71 =$48570 to $51427. Now we all know Buffett paid
    way too much for Gereral Re last year. He can buy
    General Re much much cheaper this year at about $175 plus
    some goodwills.

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    • I guess I'm using "profit commission" a little
      too loosely. I think of an override as recognition of
      the underlying profitability of the ceded business.
      Sort of a prospective fixed profit commission --
      doesn't adjust based on actual loss experience after the
      fact like a typical profit commission. Perhaps more
      like a bounty in some ways. Sorry for the misuse.

    • Buffett's Holding Company Had Strong

      OMAHA, Neb. (Reuters) - Berkshire Hathaway Inc.
      (NYSE:BRKa - news), the wildly diverse and successful
      holding company of billionaire investor Warren Buffett,
      said Tuesday its net earnings rose nearly 50 percent
      in 1998.

      The company, which owns, among other
      things, insurance companies, a restaurant chain and a
      jeweler, said its net earnings for the year ended December
      31 rose to $2.8 billion from $1.9 billion in

      The increase was led by a surge in realized
      investment gains, which rose to $1.6 billion from $704
      million in 1997. Earnings from operations rose to $1.3
      billion from $1.2 billion.

      On a per share basis,
      earnings from operations rose to $1,021 from $971 and net
      earnings rose to $2,262 from $1,542.

      Hathaway said GEICO, which sells auto and home insurance
      and is the company's largest operation, was a main
      contributor to operating profits last year, with an
      underwriting profit margin of 6.7 percent, above its

      Premium rate cuts were seen in some U.S. states last year
      and the company said margins in 1999 ``will almost
      certainly decrease.''

      Berkshire Hathaway said its
      much-anticipated letter to shareholders, penned by Buffett, who is
      chairman, is scheduled to be posted on the Internet on
      March 13.

      In an annual ritual, shareholders and
      investors pore over Buffett's yearly letter for some
      insight into the investor's thoughts about the stock
      market, other financial markets and possibly hints on his

      Buffett, who owns stakes in such blue chips as Gillette
      Co. (NYSE:G - news) and Coca Cola Co., typically
      declines to discuss his investments and does not make
      stock or investment recommendations.

      Hathaway's class A shares were down $400 at $73,005 and
      class B shares were off $26 at $2,411 in late morning
      activity on the New York Stock Exchange.

    • Just "right" click the address in the address bar, choose "copy", then put your mouse where you want to post the link, "right" click and choose "paste".

    • As a techno-weenie, I don't know how to post the link. Can you help?

    • The Berkshire news release states that General
      Re's results were included in 1998's results for only
      10 days. GEICO's underwriting profit margin of 6.7%
      (well above their target) was the biggest contributor
      to operating results. Buffett warns that this margin
      will almost certainly decrease in 1999 due to premium
      rate reductions taken in certain states during 1998.
      GEICO's growth continued to accelerate in all categories
      of auto insurance. Voluntary policies in force
      increased 20.8% well ahead of the 16% increase in 1997 and
      the 10% increase in 1996. Year over year growth is
      continuing in 1999.

    • Actually Martha, you got it almost 100% right.
      You describe an override commission correctly, but a
      profit commission is not the same thing as an override

      Generally, a reinsurance contract will define its net profit
      as premiums collected less ceding commissions less
      loss and loss adjustment expenses ceded less an
      expense factor. A profit commission provision in a
      reinsurance contract results in part of the reinsurer's net
      profit being returned to the primary company, either
      when the reinsurer's liabilities are terminated or
      after a certain amount of time has elapsed.

      sliding scale commission is mechanically very similar in
      that the final net commission paid to the primary
      company depends on loss experience, but no definition of
      profit enters into the formula.

    • GRN included in these numbers, had to have some effect - but, I,m with you - Looks good so far

    • ......for your of success to you too......

    • Portion of reinsurance premium paid back to the
      primary company to reimburse them for their original
      production expenses. Practically speaking, a bit of an
      accounting game. No economic reason why primary companies
      don't just cede the net amount to reinsurers. However,
      ceding commissions flow through accounting statements as
      negative expenses, so the primary company net expense
      ratios don't look screwy. When ceding commissions exceed
      the primary company's expense level, you get an
      "override". Essentially a recognition by the reinsurer of the
      profitability of the business being ceded -- profit commission.
      Some primary companies cede a very high percent of
      writings with very little net risk. They live off the
      overrides with next to zero risk taking. Lots of different
      ways to play the insurance game.

      Best of

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