Attention fellow cult members: the conference call # for the General Re & Berkshire merger is 1-800-839-4350. The duration of the call is 1 1/2 hr. So grab a few mushrooms and your lotus glasses,and then drop into the steam of Oz.
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
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.