Berkshire Hathaway 2009 Annual Report Download - page 10

Finally, we own a group of smaller companies, most of them specializing in odd corners of the
insurance world. In aggregate, their results have consistently been profitable and, as the table below shows, the
float they provide us is substantial. Charlie and I treasure these companies and their managers.
Here is the record of all four segments of our property-casualty and life insurance businesses:
Underwriting Profit Yearend Float
(in millions)
Insurance Operations 2009 2008 2009 2008
General Re ...................... $ 477 $ 342 $21,014 $21,074
BH Reinsurance .................. 349 1,324 26,223 24,221
GEICO ......................... 649 916 9,613 8,454
Other Primary ................... 84 210 5,061 4,739
$1,559 $2,792 $61,911 $58,488
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And now a painful confession: Last year your chairman closed the book on a very expensive business
fiasco entirely of his own making.
For many years I had struggled to think of side products that we could offer our millions of loyal
GEICO customers. Unfortunately, I finally succeeded, coming up with a brilliant insight that we should market
our own credit card. I reasoned that GEICO policyholders were likely to be good credit risks and, assuming we
offered an attractive card, would likely favor us with their business. We got business all right – but of the wrong
type.
Our pre-tax losses from credit-card operations came to about $6.3 million before I finally woke up. We
then sold our $98 million portfolio of troubled receivables for 55¢ on the dollar, losing an additional $44 million.
GEICO’s managers, it should be emphasized, were never enthusiastic about my idea. They warned me
that instead of getting the cream of GEICO’s customers we would get the –––––well, let’s call it the
non-cream. I subtly indicated that I was older and wiser.
I was just older.
Regulated Utility Business
Berkshire has an 89.5% interest in MidAmerican Energy Holdings, which owns a wide variety of
utility operations. The largest of these are (1) Yorkshire Electricity and Northern Electric, whose 3.8 million end
users make it the U.K.’s third largest distributor of electricity; (2) MidAmerican Energy, which serves 725,000
electric customers, primarily in Iowa; (3) Pacific Power and Rocky Mountain Power, serving about 1.7 million
electric customers in six western states; and (4) Kern River and Northern Natural pipelines, which carry about
8% of the natural gas consumed in the U.S.
MidAmerican has two terrific managers, Dave Sokol and Greg Abel. In addition, my long-time friend,
Walter Scott, along with his family, has a major ownership position in the company. Walter brings extraordinary
business savvy to any operation. Ten years of working with Dave, Greg and Walter have reinforced my original
belief: Berkshire couldn’t have better partners. They are truly a dream team.
Somewhat incongruously, MidAmerican also owns the second largest real estate brokerage firm in the
U.S., HomeServices of America. This company operates through 21 locally-branded firms that have 16,000
agents. Though last year was again a terrible year for home sales, HomeServices earned a modest sum. It also
acquired a firm in Chicago and will add other quality brokerage operations when they are available at sensible
prices. A decade from now, HomeServices is likely to be much larger.
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