Berkshire Hathaway 2007 Annual Report Download - page 11

• GEICO possesses the widest moat of any of our insurers, one carefully protected and expanded by
Tony Nicely, its CEO. Last year – again – GEICO had the best growth record among major auto
insurers, increasing its market share to 7.2%. When Berkshire acquired control in 1995, that share
was 2.5%. Not coincidentally, annual ad expenditures by GEICO have increased from $31 million
to $751 million during the same period.
Tony, now 64, joined GEICO at 18. Every day since, he has been passionate about the company –
proud of how it could both save money for its customers and provide growth opportunities for its
associates. Even now, with sales at $12 billion, Tony feels GEICO is just getting started. So do I.
Here’ s some evidence. In the last three years, GEICO has increased its share of the motorcycle
market from 2.1% to 6%. We’ ve also recently begun writing policies on ATVs and RVs. And in
November we wrote our first commercial auto policy. GEICO and National Indemnity are
working together in the commercial field, and early results are very encouraging.
Even in aggregate, these lines will remain a small fraction of our personal auto volume.
Nevertheless, they should deliver a growing stream of underwriting profits and float.
• General Re, our international reinsurer, is by far our largest source of “home-grown” float – $23
billion at yearend. This operation is now a huge asset for Berkshire. Our ownership, however,
had a shaky start.
For decades, General Re was the Tiffany of reinsurers, admired by all for its underwriting skills
and discipline. This reputation, unfortunately, outlived its factual underpinnings, a flaw that I
completely missed when I made the decision in 1998 to merge with General Re. The General Re
of 1998 was not operated as the General Re of 1968 or 1978.
Now, thanks to Joe Brandon, General Re’ s CEO, and his partner, Tad Montross, the luster of the
company has been restored. Joe and Tad have been running the business for six years and have
been doing first-class business in a first-class way, to use the words of J. P. Morgan. They have
restored discipline to underwriting, reserving and the selection of clients.
Their job was made more difficult by costly and time-consuming legacy problems, both in the
U.S. and abroad. Despite that diversion, Joe and Tad have delivered excellent underwriting results
while skillfully repositioning the company for the future.
• Since joining Berkshire in 1986, Ajit Jain has built a truly great specialty reinsurance operation
from scratch. For one-of-a-kind mammoth transactions, the world now turns to him.
Last year I told you in detail about the Equitas transfer of huge, but capped, liabilities to Berkshire
for a single premium of $7.1 billion. At this very early date, our experience has been good. But
this doesn’ t tell us much because it’ s just one straw in a fifty-year-or-more wind. What we know
for sure, however, is that the London team who joined us, headed by Scott Moser, is first-rate and
has become a valuable asset for our insurance business.
• Finally, we have our smaller operations, which serve specialized segments of the insurance
market. In aggregate, these companies have performed extraordinarily well, earning above-
average underwriting profits and delivering valuable float for investment.
Last year BoatU.S., headed by Bill Oakerson, was added to the group. This company manages an
association of about 650,000 boat owners, providing them services similar to those offered by
AAA auto clubs to drivers. Among the association’ s offerings is boat insurance. Learn more
about this operation by visiting its display at the annual meeting.
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