Berkshire Hathaway [BRK] is a unique company. ?You have a property-casualty insurance giant owning many businesses directly through insurance subsidiaries, including huge businesses like a Class 1 Railroad — BNSF.

Yes, National Indemnity owns BNSF in entire, and many other businesses as well. ?I thought the pre-crisis org chart of AIG was complex — because of the many industries that it covers, BRK is far more complex. ? In the 2012 statutory statements, it runs for 22 pages. ?Let me list the top-level subsidiaries, and any significant lower level subsidiaries they own.

1. Affordable Housing Partners (common for reducing taxes w/ section 42 housing)
2. Albecca (Larson-Juhl)
3. AU Holding Company (Applied Underwriters
4. Ben Bridge Corporation
5. Benjamin Moore
6. Berkshire Hathaway Credit Corp (BH Media — all the little newspapers)
7. Berkshire Hathaway Finance Corp
8. BH Columbia Inc (Columbia Insurance, Medical Protective Corp [which owns Lubrizol debt])
9. BH Housing LLC
10. BH Shoe Holdings, Inc.
11. BH-IMC Holdings B.V. (“Iscar”)
12. BHSF (SF = Scott Fetzer)
13. Blue Chip Stamps, Inc. ?(Really, still around?)
14. Borsheim Jewelry Company
15. Brookwood Insurance Company
16. Business Wire, Inc.
17. Central States of Omaha Companies, Inc.
18. CORT Business Services Corp
19. CTB International Corp.
20. Cypress Insurance Company
21. Forest River, Inc.
22. Fruit of the Loom, Inc.
23. Garan, Inc.
24. Gateway Underwriters Agency
25. General Re Corporation (seems to own much of Fruit of the Loom)
26. Helzberg’s Diamond Shops
27. International Dairy Queen
28. Johns Manville Corp
29. Jordan’s Furniture
30. Justin Brands (Acme Brick)
31. Marmon Holdings
32. MidAmerican Energy Holdings (CalEnergy, HomeServices of America, Magma Power, NV Energy, Pacificorp)
33. MiTek Industries
34. MS Property
35. National Fire & Marine Insurance Company
36. National Indemnity (Flightsafety, BNSF, CLAL, GEICO, Clayton Homes, McLane, TTI)
37. National Liability & Fire Insurance Company
38. Nebraska Furniture Mart
39. NetJets, Inc.
40. Northern States Agency, Inc.
41. OTC Worldwide Holdings (Oriental Trading Company)
42. Precision Steel Warehouse, Inc.
43. R. C. Willey Home Furnishings
44. Richline Group, Inc.
45. See’s Candy Shops
46. Shaw Industries Group
47. Star Furniture Company
48. The Buffalo News, Inc.
49. The Fechheimer Brothers Company
50. The Lubrizol Corp
51. The Pampered Chef, Lrd.
52. US Investment Corporation
53. Wesco-Financial Insurance Company
54. XTRA Corp

BRK is huge, and Buffett prefers owning whole companies to portions of companies, because then the entire free cash flow is available to him, not just the dividends.

The first question to answer is why does Buffett have some industrial companies inside his insurers, and some not? ?That has to do with risk-based capital. ?P&C insurers have to put up capital equal to 22.5% on equity of affiliated insurers, and 15% on non-affiliated common stocks, and 20% on Schedule BA investments that are similar to stocks. ?These are more liberal than the standards for life companies, which ?have a 30% charge on stocks. ? (Which doesn’t make sense, because life insurers have longer balance sheets, and have a better ability to hold equities, but I digress…)

But even if they have to put up capital to own the companies, BRK has a negative cost of capital inside its insurers, because they make underwriting profits. ?What a business — make money on insurance, and on businesses owned by the insurance subsidiary.

One more thing about BRK’s insurance subsidiaries — in general, because they have so much asset risk, they don’t write as much insurance as other companies of their size would.

Tomorrow, I will write part 2 on this, regarding the one anomaly I found going through BRK’s statutory books, the Harney Investment Trust. ?Till then.

Full disclosure: long BRK/B for clients and me