The Aleph Blog » Blog Archive » A Letter to Warren

A Letter to Warren

[Address]

[Phone]

1 March 2013

Dear Mr. Buffett,

Four years ago, I contacted the IR department at AIG to ask for copies of all the 2008 statutory books for all the insurance subsidiaries.  To my surprise, they sent them, 60 pounds worth, and I wrote a report explaining how almost all of the domestic life subsidiaries had to be bailed out because of a funky securities lending agreement that allowed AAA subprime RMBS to used as collateral in place of T-bills.  The report was cited by SIGTARP in their review of the AIG bailout.

I am writing to you asking for copies of the 2012 statutory books for Berkshire Hathaway.  My purposes are different than with AIG.  You’ve done something unique with Berkshire Hathaway.  No one else has created such a multifaceted conglomerate, much less one with well-run insurance companies at the core, providing funding.

I have the capability of understanding the documents and doing a good job with them.  I am an actuary as well as a value investor, and have been a buy-side analyst in a hedge fund where I focused on the insurance industry.  (Todd Combs and I interacted a little when I was a buy-side analyst.  You chose well.)

My clients and I own “B” shares of Berkshire Hathaway, so I am a small part of the Berkshire family.  If you are willing, please send me of the 2012 statutory books for Berkshire Hathaway.

Sincerely,

David J. Merkel, CFA

Principal, Aleph Investments

Writer at the Aleph Blog

And the deservedly terse handwritten response:

David, Sorry we get a lot of requests & it would be burdensome for a small staff to respond to these.

Warren

My Thoughts

Buffett is right, and I should have thought harder.  Everything BRK does is disaggregated, even filing Statutory Statements.  I am mentally stuck in the world of when I was an actuary engaged in financial reporting, where we would have a room where we would gather all the data to go to the states, rating agencies, etc.  I had to do that many times.

But Berkshire acts like a bunch of unaffiliated companies, and files their data separately.  To the best of my knowledge, that means I would have to ask 37 different entities for their Statutory Statements.  Here they are:

Company NameState of DomicileNAIC Number
CALIFORNIA INSURANCE COMPANYCA

38865

COMMERCIAL CASUALTY INSURANCE COMPANYCA

32280

CYPRESS INSURANCE COMPANYCA

10855

FINIAL REINSURANCE COMPANYCT

39136

GENERAL RE LIFE CORPORATIONCT

86258

GENESIS INSURANCE COMPANYCT

38962

IDEALIFE INSURANCE COMPANYCT

97764

NATIONAL LIABILITY & FIRE INSURANCE COMPANYCT

20052

AMERICAN CENTENNIAL INSURANCE COMPANYDE

10391

GENERAL REINSURANCE CORPORATIONDE

22039

GENERAL STAR NATIONAL INSURANCE COMPANYDE

11967

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC.IA

14144

CONTINENTAL INDEMNITY COMPANYIA

28258

ILLINOIS INSURANCE COMPANYIA

35246

MEDICAL PROTECTIVE COMPANY (THE)IN

11843

GEICO CASUALTY COMPANYMD

41491

GEICO GENERAL INSURANCE COMPANYMD

35882

GEICO INDEMNITY COMPANYMD

22055

GOVERNMENT EMPLOYEES INSURANCE COMPANYMD

22063

SEAWORTHY INSURANCE COMPANYMD

37923

BERKSHIRE HATHAWAY HOMESTATE INSURANCE COMPANYNE

20044

BERKSHIRE HATHAWAY LIFE INSURANCE COMPANY OF NEBRASKANE

62345

CENTRAL STATES INDEMNITY CO. OF OMAHANE

34274

COLUMBIA INSURANCE COMPANYNE

27812

CSI LIFE INSURANCE COMPANYNE

82880

NATIONAL INDEMNITY COMPANYNE

20087

OAK RIVER INSURANCE COMPANYNE

34630

REDWOOD FIRE AND CASUALTY INSURANCE COMPANYNE

11673

STONEWALL INSURANCE COMPANYNE

22276

ATLANTA INTERNATIONAL INSURANCE COMPANYNY

20931

BERKSHIRE HATHAWAY ASSURANCE CORPORATIONNY

13070

UNIONE ITALIANA REINSURANCE COMPANY OF AMERICA, INC.NY

36048

AMGUARD INSURANCE COMPANYPA

42390

EASTGUARD INSURANCE COMPANYPA

14702

NORGUARD INSURANCE COMPANYPA

31470

PHILADELPHIA REINSURANCE CORPORATIONPA

12319

UNITED STATES LIABILITY INSURANCE COMPANYPA

25895

How do you get the data in this case?

1) I suppose I could write each one and ask, but there is no guarantee that many would listen or act.

2) I could buy it from the NAIC, but it would run to around $700, and I am not doing that for a mere blog post.  Most insurers give you the statutory statements if you ask (in PDF form).  I never pay for Stat statements; I believe that they should be available in electronic form for free, or a nominal fee.

Maybe someone would want to pay it in exchange for credit on the series of articles that would flow from it?  Maybe SNL would pay for an article from me?  Or Bloomberg?  Or a competitor?  Or the sell-side wanting a guest piece? Or…

3) I could ask my readers for ideas.

Why would anyone care about this?

1) Alice Schroeder wrote the first sell-side analysis of Berkshire Hathaway.  In it she stated that the company had a waiver from the Risk-Based Capital rules from the states.  If true, that is quite a regulatory advantage, and I would want to verify that.  Current regulators might care.

2) Buffett is clever, and has the holding company and well-run insurers owning industrial, utility and service businesses.  If this is done well, and it is quite an accomplishment, because the alphas of prudent underwriting and ownership of well-run businesses get added together on one capital base.  Others might like to duplicate it.  I know that I have gotten pitches from consultants touting such ideas.

Anyway…

Well, it was worth a try.  Marc Hamburg did not return my phone calls, but I understand.  BRK is different from other companies — even the insurance is done subsidiary by subsidiary.  If any of you have ideas, I am all ears.

On the bright side, I do have a short note from the guy I have learned so much from.  I may frame it… ;)

Full disclosure: long BRK/B






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Disclaimer


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.


Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.


Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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