Berkshire Hathaway 2008 Annual Report Download - page 10

When MidAmerican proposed its purchase of PacifiCorp in 2005, regulators in the six new states we
would be serving immediately checked our record in Iowa. They also carefully evaluated our financing plans and
capabilities. We passed this examination, just as we expect to pass future ones.
There are two reasons for our confidence. First, Dave Sokol and Greg Abel are going to run any
businesses with which they are associated in a first-class manner. They don’t know of any other way to operate.
Beyond that is the fact that we hope to buy more regulated utilities in the future – and we know that our business
behavior in jurisdictions where we are operating today will determine how we are welcomed by new jurisdictions
tomorrow.
Insurance
Our insurance group has propelled Berkshire’s growth since we first entered the business in 1967. This
happy result has not been due to general prosperity in the industry. During the 25 years ending in 2007, return on
net worth for insurers averaged 8.5% versus 14.0% for the Fortune 500. Clearly our insurance CEOs have not
had the wind at their back. Yet these managers have excelled to a degree Charlie and I never dreamed possible in
the early days. Why do I love them? Let me count the ways.
At GEICO, Tony Nicely – now in his 48th year at the company after joining it when he was 18 –
continues to gobble up market share while maintaining disciplined underwriting. When Tony became CEO in
1993, GEICO had 2.0% of the auto insurance market, a level at which the company had long been stuck. Now we
have a 7.7% share, up from 7.2% in 2007.
The combination of new business gains and an improvement in the renewal rate on existing business
has moved GEICO into the number three position among auto insurers. In 1995, when Berkshire purchased
control, GEICO was number seven. Now we trail only State Farm and Allstate.
GEICO grows because it saves money for motorists. No one likes to buy auto insurance. But virtually
everyone likes to drive. So, sensibly, drivers look for the lowest-cost insurance consistent with first-class service.
Efficiency is the key to low cost, and efficiency is Tony’s specialty. Five years ago the number of policies per
employee was 299. In 2008, the number was 439, a huge increase in productivity.
As we view GEICO’s current opportunities, Tony and I feel like two hungry mosquitoes in a nudist
camp. Juicy targets are everywhere. First, and most important, our new business in auto insurance is now
exploding. Americans are focused on saving money as never before, and they are flocking to GEICO. In January
2009, we set a monthly record – by a wide margin – for growth in policyholders. That record will last exactly 28
days: As we go to press, it’s clear February’s gain will be even better.
Beyond this, we are gaining ground in allied lines. Last year, our motorcycle policies increased by
23.4%, which raised our market share from about 6% to more than 7%. Our RV and ATV businesses are also
growing rapidly, albeit from a small base. And, finally, we recently began insuring commercial autos, a big
market that offers real promise.
GEICO is now saving money for millions of Americans. Go to GEICO.com or call 1-800-847-7536
and see if we can save you money as well.
General Re, our large international reinsurer, also had an outstanding year in 2008. Some time back,
the company had serious problems (which I totally failed to detect when we purchased it in late 1998). By 2001,
when Joe Brandon took over as CEO, assisted by his partner, Tad Montross, General Re’s culture had further
deteriorated, exhibiting a loss of discipline in underwriting, reserving and expenses. After Joe and Tad took
charge, these problems were decisively and successfully addressed. Today General Re has regained its luster.
Last spring Joe stepped down, and Tad became CEO. Charlie and I are grateful to Joe for righting the ship and
are certain that, with Tad, General Re’s future is in the best of hands.
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