2015: How does Berkshire plan to take advantage of opportunities in reinsurance?

GARY RANSOM: The reinsurance market has changed dramatically over the last two or three years, a lot of alternative capital coming into the business, making it much harder to make the assumption that there would be a big opportunity after the next big catastrophic event. What is it that you and Ajit are planning to change, or do, to take advantage of whatever opportunities might be there?

WARREN BUFFETT: Well, wouldn’t our competitors like to know? (Laughs)

The reinsurance business is not as good as it was, and it’s unlikely to be as good as it was. There’s a lot of money that’s come into reinsurance, not because they want to reinsure people, but because it’s become either a fashionable asset class for people that are looking for so-called noncorrelated investments and may not know what they’re doing, but it’s something you can sell people, you know, that’s an attractive line to go to pension funds with.

And then, secondly, it’s a beard for doing — for asset management. So, if you go to Bermuda and start a reinsurance company, you can actually run a hedge fund, and you need a little business to make it look like you’re doing something other than running a hedge fund, and locating it offshore so you don’t pay any tax, but that’s the primary motivation.

So when you get a whole lot of people that are bringing money in and they sort of need your facade of reinsurance to cover up what their real motivations are, you’re likely to get less attractive prices in reinsurance. And that’s been happening on a fairly large scale, and I would say that I would expect the reinsurance business in the next 10 years to not be as good as it has been — I’m talking about the whole industry — as it has been, you know, in the last 30 or something like that.

It’s a business whose prospects have turned for the worse, and there’s not much we can do about it. We do find things to do. There are certain things that only Berkshire can do, and we’ve — I mentioned in the annual report that there have been eight — I think it was eight — contracts written with premiums of a billion dollars or more, and we’ve written all eight of them. So, we do — there’s a certain corner of the world that we’ve got a strong position in, and there’s a few other things we will do, but it’s not as good as it was. Charlie?

CHARLIE MUNGER: Well, I think, generally speaking, of course, it’s going to be harder and, of course, this competition from promotional finance is getting more and more intense and they’re more optimistic. They’re searching for a robust narrative. We’re not searching for a robust narrative so we can sell something. We’re playing the game for the long pull and other people just pretend to be doing so.

WARREN BUFFETT: Yeah. We could — we’ve had the opportunity over — for a long period of time — to go out and promote reinsurance-type money, and really take advantage, you know, of people on it, because we would have the best reputation in the field, and we could attract a ton of money, and we could get a big overwrite on it. But it’s not our game.

CHARLIE MUNGER: And we don’t particularly admire the way it’s being played.