1999: What's the incremental value of Gen Re's float?

AUDIENCE MEMBER: David Winters, Mountain Lakes, New Jersey.

Could you give us a few hints about the incremental value of Gen Re’s float under the Berkshire Hathaway umbrella and the potential for the growth of Gen Re’s float over the long term?

WARREN BUFFETT: Yeah. Gen Re’s float, which is now available to Berkshire — it’s a hundred percent-owned subsidiary, although part of that float is attributable to Cologne, which is only an 83 percent-owned subsidiary of Gen Re and also Berkshire.

But that, I would say, the incremental value today, because it’s under the Berkshire umbrella, is zero. Because we are bringing nothing to the party that Gen Re’s own investment people would not have brought to the party.

We obviously think that there will be important incremental value over a long period of time. We — but when that value will appear or how much of it develops, is a matter that’s out of our hands.

We, right now, have close to 24 billion in total invested assets at Gen Re and Cologne. Like I say, 83 percent of the Cologne part is ours and 17 percent is — belongs to somebody else.

But we are bringing nothing to that party right now, in terms of any managerial skill that is going to add value. I would hope that over time, we would.

The second question, as to the growth of float, the growth of float at General Re and Cologne will certainly be very slow in the short term. The growth of float at GEICO will be significant, percentage-wise.

The reinsurance business does not have the same potential for growth as we have at GEICO. And growth is much slower to come about, because there are longer-term contractual commitments — that people are reluctant to change reinsurers. And they should be. We agree with that.

So you — at a level of 6 billion or so of premium volume and already 14 billion of float, you won’t have growth of float unless premium volume is — becomes significantly higher in the future.

I think that will happen over time. It will not happen in the short term.

Charlie? If I may interrupt your breakfast? (Laughter)

CHARLIE MUNGER: I’ve got nothing to add.

WARREN BUFFETT: OK. (Laughter)