Buffett/Berkshire - general news

[DooDiligence]

NEW YORK — A New York appellate court has upheld dismissal of claims accusing Berkshire Hathaway Inc. of participating in a fraudulent workers’ compensation scheme involving a reinsurance participation agreement (RPA), finding the plaintiffs failed to allege jurisdiction over the holding company.

On March 16, the New York Appellate Division, 1st Department, said plaintiffs presented no evidence that BHI collected workers’ compensation premiums from the policyholders or exercised control over its Applied Underwriters subsidiaries.

www.harrismartin.com/publications/14/reinsurance/articles/27133/ny-court-upholds-dismissal-of-berkshire-hathaway-from-applied-underwriters-action/

i don't have complete access to the link and the official NY Supreme Court judgement doesn't seem to be immediately available.

This seems to be a conclusion of an extended process related to aggressive forms of marketing by the previously owned sub about a reinsurance (RPA) product with an embedded profit sharing (EquityComp) scheme that was too complicated for the regulators to endurably maintain but not opaque enough to reach the burden of proof necessary to be condemned in civil courts. The employers who became captive in more ways than one were often left in disbelief when adverse development occurred over the course of many years (these were typical small business owners). The business is fascinating and involves sharing some the costs saved. (From relevant personal experience on a smaller scale), it may work very well but partners need to understand and maintain trust and greed has to be kept under control.

If interested, see the following (headlines suffice with no need to go into details):

https://www.wcexec.com/investigations/applied/

This shows how Applied interacts with the California regulator and it's not elegant; and so un-Buffettesque. No wonder they're on their own now.

 

Thanks for the link. Browsing through the various investigations outlines pretty well why WEB wanted to be shut of these guys.

[DooDiligence]

It's proxy vote time again.

 

Could someone tell me what Ken Chenault brings to the board?

 

I'm asking because of the following article excerpt,

 

"When Chenault made the reverse trip to Issaquah, the Costco guys were tickled by how meticulously Amex choreographed his movements. “Ken Chenault would have an advance team come to our office before he visited,” says Paul Latham, Costco’s vice president for membership and marketing. “They planned everything—where he would enter the building, the route to the boardroom, where he’d sit at the table.” After breakfast, Chenault would often give an elaborate presentation about the performance of Amex’s Costco affinity card, using PowerPoint decks that looked like they took weeks, maybe months, to prepare. Costco just jotted down some notes for their CEO, Craig Jelinek, to talk about.

 

The Amex people, most of whom had MBAs, sometimes found it amusing to deal with Costco veterans who spoke about starting out stocking warehouse shelves. Less endearing was the habit Costco executives had of referring to Amex as a “vendor.” That made the Amex people seethe. After all, they represented one of America’s oldest corporations. But they smiled and said nothing, and the corporate marriage endured for 16 years."

 

www.bloomberg.com/features/2015-how-amex-lost-costco/

 

This kind of makes him look like an ass. Is this characterization even fair?

[wabuffo]

If I apply the Kansas City Southern EV/EBITDA C-P deal multiple on BNSF, I get an implied equity value of $142.8B for the railroad.  Perhaps that's too high without factoring in giving up a control premium but still an interesting datapoint.  I had the impression, Buffett ranked BNSF in third place (behind insurance, Apple stake, but ahead of Energy biz).

 

Total BRK market cap is $580B.

 

wabuffo

 

 

 

 

[thepupil]

If I apply the Kansas City Southern EV/EBITDA C-P deal multiple on BNSF, I get an implied equity value of $142.8B for the railroad.  Perhaps that's too high without factoring in giving up a control premium but still an interesting datapoint.  I had the impression, Buffett ranked BNSF in third place (behind insurance, Apple stake, but ahead of Energy biz).

 

Total BRK market cap is $580B.

 

wabuffo

 

my lazy method is 0.9x UNP which is $125B, and then +/- 20% or so for rough bear/bull, depending on how I feel that day. A nice round $100-$150B seems adequately wide but not to the point of meaningless range. 

 

there was also loose/subtle corroboration of $100B+ when Buffett in the most recent letter talked about BNSF/AAPL being similarly sized / valued parts of Berkshire with the AAPL state at $120B at the time/$110B now.

 

Our second and third most valuable assets – it’s pretty much a toss-up at this point – are Berkshire’s 100% ownership of BNSF, America’s largest railroad measured by freight volume, and our 5.4% ownership of Apple

 

they are pretty comparable (though UNP has adopted PSR to a greater degree)

 

UNP

Revenue 2018-2020: $21, $20.2, $18.2

Net Income: $5.3, $5.9, $5.9

OCF: $8.5, $8.6, $8.6

 

BNSF

Revenue $20, $23, $23

NI: $5.1, $5.4, $5.2

OCF:$7.9, $8.1, $7.9

[ValueMaven]

great stuff regarding the rails ... BNSF & BHE also gives Berkshire massive reinsurance optionality. 

 

BNSF was a brilliant acquisition.  period. 

[LearningMachine]

BNSF was a brilliant acquisition.  period.

 

I remember watching it in slow motion.  BNSF was cash-flowing well its rights to scarce physical pathways across U.S. 

 

After learning about Bill Gates' railroad purchase, I had started following it before Berkshire bought it.  I started paying more attention as Berkshire started buying shares.  As the # of shares purchased kept on going up, I remember realizing that Berkshire is probably looking to purchase it outright.

 

My memory is a little faint, but I think Buffett tried to hide the purchase of shares on that also a little bit.  During the big recession, I remember when price was around $70 per share, I was waiting for it to fall further, and then Berkshire snapped up the remaining shares at $100 per share.

 

Now, I see VZ with its cash-flowing rights to scarce spectrum across U.S. in similar situation and wonder if it might be too big to swallow, or if there is a probability that it might be a way to pick up BRK shares for cheap.  In inflationary times, VZ's rights also don't need as much higher maintenance as would BNSF's rolling stock.

 

Wonder how the ratio of VZ's Market Cap of $230B to Cashflow from operations of $41.8B compares to BNSF's valuation in Buffett's mind.  That $41.8B annual cashflow from operations ideally belongs in Buffett's hands to invest further as he will likely be able to make better investments with it than arguably VZ has been.

[Cigarbutt]

^Triangulating a few methods and adjusting for KSU specifics and control premium, i come to a 130-135B for current relative valuation for BNSF.

KSU has some significant differences.

Question: But is this implied 'value' appropriate to:

-help derive current IV for BRK?

-assess the return on the 2010 BNSF investment?

-decide if railways are an opportunity now?

My answer is a humble no, at least not quite.

 

In the last 10 years or so, return on major NA railways were derived from:

-top-line revenue growth (low)

-decreasing operating ratios (1-OPM); i think this was a major insight by Mr. Buffett in 2010 when he bought for 44B ie the expectation that efficiency gains would be realized

-lower tax rates

-lower interest rates

-buyback activity (this will always look good when share price and multiple expand)

-multiple expansion

 

Since 2010,  the multiple on railways earning power has doubled and explains a significant part of the return, reflecting underlying growth in operating earnings. Efficiency gains are still possible but it will be hard to obtain the same rate of improvements. In sum, many tailwinds could become relative headwinds and wonder if there is a rearview mirror issue here. And of course some of the above drivers are correlated so..

 

It's interesting to note that the KSU purchase is financed two thirds with CP stock..

 

We know Mr. Buffett would not sell BNSF in the open market now even with present valuation levels and the 2010 looks impressive, timing wise.

https://www.fastgraphs.com/buffetts-burlington-northern-santa-fe-move-foreshadowing-the-growth-of-american-rail/

Disclosure: i've had CNR on a watchlist for more than 20 years and still hope to catch it at some point.

 

Also, BNSF seems to be going against the current by staying away from the 'PSR' strategy. i understand that you don't need a name for an effective strategy but i've been struggling with this aspect.

[boilermaker75]

BNSF was a brilliant acquisition.  period.

 

I remember watching it in slow motion.  BNSF was cash-flowing well its rights to scarce physical pathways across U.S. 

 

After learning about Bill Gates' railroad purchase, I had started following it before Berkshire bought it.  I started paying more attention as Berkshire started buying shares.  As the # of shares purchased kept on going up, I remember realizing that Berkshire is probably looking to purchase it outright.

 

My memory is a little faint, but I think Buffett tried to hide the purchase of shares on that also a little bit.  During the big recession, I remember when price was around $70 per share, I was waiting for it to fall further, and then Berkshire snapped up the remaining shares at $100 per share.

 

Now, I see VZ with its cash-flowing rights to scarce spectrum across U.S. in similar situation and wonder if it might be too big to swallow, or if there is a probability that it might be a way to pick up BRK shares for cheap.  In inflationary times, VZ's rights also don't need as much higher maintenance as would BNSF's rolling stock.

 

Wonder how the ratio of VZ's Market Cap of $230B to Cashflow from operations of $41.8B compares to BNSF's valuation in Buffett's mind.  That $41.8B annual cashflow from operations ideally belongs in Buffett's hands to invest further as he will likely be able to make better investments with it than arguably VZ has been.

 

I remember writing a lot of puts on BNI, from around 60-strike all the way up to 90-strike in 2008-2009. It was like an ATM spitting out cash.

 

I've written some 55- and 56-strike puts on VZ, but at an order of magnitude smaller volume for now than I was doing with BNI.

[LearningMachine]

BNSF was a brilliant acquisition.  period.

 

I remember watching it in slow motion.  BNSF was cash-flowing well its rights to scarce physical pathways across U.S. 

 

After learning about Bill Gates' railroad purchase, I had started following it before Berkshire bought it.  I started paying more attention as Berkshire started buying shares.  As the # of shares purchased kept on going up, I remember realizing that Berkshire is probably looking to purchase it outright.

 

My memory is a little faint, but I think Buffett tried to hide the purchase of shares on that also a little bit.  During the big recession, I remember when price was around $70 per share, I was waiting for it to fall further, and then Berkshire snapped up the remaining shares at $100 per share.

 

Now, I see VZ with its cash-flowing rights to scarce spectrum across U.S. in similar situation and wonder if it might be too big to swallow, or if there is a probability that it might be a way to pick up BRK shares for cheap.  In inflationary times, VZ's rights also don't need as much higher maintenance as would BNSF's rolling stock.

 

Wonder how the ratio of VZ's Market Cap of $230B to Cashflow from operations of $41.8B compares to BNSF's valuation in Buffett's mind.  That $41.8B annual cashflow from operations ideally belongs in Buffett's hands to invest further as he will likely be able to make better investments with it than arguably VZ has been.

 

I remember writing a lot of puts on BNI, from around 60-strike all the way up to 90-strike in 2008-2009. It was like an ATM spitting out cash.

 

I've written some 55- and 56-strike puts on VZ, but at an order of magnitude smaller volume for now than I was doing with BNI.

 

Way to go!

 

If I remember correctly, Berkshire also picked up some BNI shares by writing puts perhaps in an attempt buy shares without raising the price.

 

Did your puts end up getting exercised?  In hindsight, did you make more money by selling puts than you would have made by buying BNI shares at the time to get BRK shares for cheap?

 

Just so that I understand, is your volume with writing VZ puts lower than it was for BNI because you like to be more diversified now or because you're not as sure yet if BRK will acquire VZ as you were with BNI?  If the April 13F shows a lot more VZ share purchases, would that change your mind?

[thepupil]

My answer is a humble no, at least not quite.

 

I agree; we can't take the market's valuation of KSU or UNP at face value. But it is a good data point. Even if you haircut the $120-$130B or whatever by a significant amount (say to $80 billion), this still compares very favorably to BNSF's $44 billion of equity value at Berkshire.

 

Said more succinctly, BNSF is 10% of Berkshire's equity and market comps are at 2.7x Berkshire's book value. Even if the market's too hot, a big haircut will get you to 1.8x. So when buying Berkshire at 1.3x, knowing 10% is "worth" 2.7x to the discounting mechanism that is Mr. Market (who could be off), is a helpful data point re potential margin of safety / upside.

 

I also think it's useful in thinking about Berkshire's concentration / relative position sizes. It tells me the order in which I should worry about things.

 

For example, I should give about 8-15x as many shits about railroads as Kraft Heinz. Or 4-8x as many shits about railroads, as Coca Cola

 

you do have to be careful and not double count though. For example, I've caught myself writing up BNSF/BE and then writing down the DTL separately (a big portion of which is attributable to BNSF and BE).

 

 

Railroad Utes, Energy @ Berkshire has $209B assets and $98B of liabilities ($111 billion of equity) but then has ~$25B / $74B Deferred tax liabilities which is on a separate line item. So the book value (using the 10-Ks of BNSF and BHE to corroborate) of BNSF and BE is about $87 billion, pretty much evenly split between Berkshire Hathaway Energy and BNSF.

 

 

 

 

[rolling]

^Triangulating a few methods and adjusting for KSU specifics and control premium, i come to a 130-135B for current relative valuation for BNSF.

KSU has some significant differences.

Question: But is this implied 'value' appropriate to:

-help derive current IV for BRK?

-assess the return on the 2010 BNSF investment?

-decide if railways are an opportunity now?

My answer is a humble no, at least not quite.

 

In the last 10 years or so, return on major NA railways were derived from:

-top-line revenue growth (low)

-decreasing operating ratios (1-OPM); i think this was a major insight by Mr. Buffett in 2010 when he bought for 44B ie the expectation that efficiency gains would be realized

-lower tax rates

-lower interest rates

-buyback activity (this will always look good when share price and multiple expand)

-multiple expansion

 

Since 2010,  the multiple on railways earning power has doubled and explains a significant part of the return, reflecting underlying growth in operating earnings. Efficiency gains are still possible but it will be hard to obtain the same rate of improvements. In sum, many tailwinds could become relative headwinds and wonder if there is a rearview mirror issue here. And of course some of the above drivers are correlated so..

 

It's interesting to note that the KSU purchase is financed two thirds with CP stock..

 

We know Mr. Buffett would not sell BNSF in the open market now even with present valuation levels and the 2010 looks impressive, timing wise.

https://www.fastgraphs.com/buffetts-burlington-northern-santa-fe-move-foreshadowing-the-growth-of-american-rail/

Disclosure: i've had CNR on a watchlist for more than 20 years and still hope to catch it at some point.

 

Also, BNSF seems to be going against the current by staying away from the 'PSR' strategy. i understand that you don't need a name for an effective strategy but i've been struggling with this aspect.

 

https://www.breakthroughfuel.com/blog/precision-scheduled-railroading/

After reading this, I would be surprised if BNSF addopted the PSR schedule... lowering service quality to improve profitability while simultanously restricting future growth seems agains BRK ethos

[thepupil]

has anyone ever looked into how insurance regulators treat the BNSF stake?

 

National Indemnity owns 100%

100% of the membership interests of Burlington Northern Santa Fe, LLC outstanding as of March 1, 2021 is held by National Indemnity Company, a wholly-owned subsidiary of Berkshire Hathaway Inc.

 

 

Questions that spring to mind:

 

How is BNSF valued by regulators? (book? comps? haircut to comps for illiquidity?)

If UNP went up/down by 30% does that have any effect on Berkshire/NICO's relationship with regulators?

 

Here are NICO's "financials" . It has $306 billion of assets. How is BNSF figured in that? I've never taken the time to figure that out / delve into NAIC filings.

http://www.nationalindemnity.com/files/financialreports/nico.pdf

 

Here is something from 2018, as of Year end 2016. See page 25. there's a line item "other invested assets" that's a very stable $46-$48 billion. I think that's BNSF.

https://doi.nebraska.gov/sites/doi.nebraska.gov/files/doc/National%20Indemnity%20Company%20%28NICO%29%202016%20NE%20Exam%20Report-FINAL%20REPORT_0.pdf

 

 

 

[wabuffo]

How is BNSF valued by regulators?

 

https://prod.stb.gov/reports-data/economic-data/annual-report-financial-data/

 

I've never looked deeply - but all the Class 1 railroads have to file financial reports with the US Surface Transportation Board.  There might be some information here about how BNSF is regulated.  I think you need to cop a squint at the Schedule 250s.

 

wabuffo

[Cigarbutt]

...

Also, BNSF seems to be going against the current by staying away from the 'PSR' strategy. i understand that you don't need a name for an effective strategy but i've been struggling with this aspect.

https://www.breakthroughfuel.com/blog/precision-scheduled-railroading/

After reading this, I would be surprised if BNSF addopted the PSR schedule... lowering service quality to improve profitability while simultanously restricting future growth seems agains BRK ethos

i guess one has to delegate to top management in these cases because there are trade-offs and what works for a company may not work for another. i've followed 3rd-party logistics intermediates (eg CH Robinson and Expeditors) and it's an area (supply chain management) that is tricky to manage. i remember for example the trade-offs when CH Robinson described the dynamics of a truck route and multi-stopping vs costs, pricing, efficiency and customer satisfaction. Hunter Harrison's name has become synonymous with the PSR logo but maybe he was just a great operator.

has anyone ever looked into how insurance regulators treat the BNSF stake?

...

How is BNSF valued by regulators? (book? comps? haircut to comps for illiquidity?)

If UNP went up/down by 30% does that have any effect on Berkshire/NICO's relationship with regulators?

...

Here's a student-level answer and the risk-based evaluation varies from state to state so..

The regulators will reduce capital according to various perceived risks including for investments held. Then they compare this net surplus to underlying insurance business (policyholder perspective). The regulators typically have a schedule, for example, that shaves off capital (0.023 to 0.3) from bonds and preferred stock according to credit grade and adjusted for diversification. For stocks, the capital penalty is typically 30%.

The regulators are not in the business of revaluation or reacting to mark-to-market moves. i assume they take the BNSF stake reported at book value and remove 30% from that in order to define the risk-based adjusted capital. For NI, it does not really matter since they are so massively over-capitalized.

[bizaro86]

I would be pissed if I was a policyholder of a firm and their regulator let them mark privately held equity to a public comp.

 

Where's the line there? Maybe with NI and BNS its fine, but what about a little lifeco that has a venture investment in a meal delivery service. Should that get marked to Door Dash EV/sales for the purpose of determining if they have enough capital to write your Grandma an annuity?

 

Book value at a discount, imo.

[ValueMaven]

Great point about stated book value vs. true economic book value.  I've never seen any fair market adjustment for the operating assets under Berkshire's ownership structure.  Ie: Fair Market Adjustments to Price

[thepupil]

fair points and appreciate the contributions.

 

my understanding (from reading long ago and I can't find corroboration of this) is that BNSF is held at National Indemnity for tax efficiency purposes.

 

For tail risk purposes, I would prefer it be held at the Berkshire/holdco level and away from insurance liabilities (I understand we're getting into wacky / tail scenarios)

 

it seems it would not drastically impact NI surplus (to distribute/dividend out the BNSF LLC interest to Berkshire) if BNSF is counted at a discount to book.

 

On the flip side, this does seem to be a good reason for Berkshire to float a little BNSF and get a public mark. Overcapitalization would become even greater overnight (even if they applied a bigger haircut than to normal stocks).

 

anyways, this is all very tail / not relevant, so I'll shut up.

[bizaro86]

fair points and appreciate the contributions.

 

my understanding (from reading long ago and I can't find corroboration of this) is that BNSF is held at National Indemnity for tax efficiency purposes.

 

For tail risk purposes, I would prefer it be held at the Berkshire/holdco level and away from insurance liabilities (I understand we're getting into wacky / tail scenarios)

 

it seems it would not drastically impact NI surplus (to distribute/dividend out the BNSF LLC interest to Berkshire) if BNSF is counted at a discount to book.

 

On the flip side, this does seem to be a good reason for Berkshire to float a little BNSF and get a public mark. Overcapitalization would become even greater overnight (even if they applied a bigger haircut than to normal stocks).

 

anyways, this is all very tail / not relevant, so I'll shut up.

 

Thats something I've never thought about. Does anyone know how much of BRK net worth is in the insurance subs and how much is at the holdco?

[Xerxes]

Not too contaminate this thread with Brookfield, but wouldn't the Canadian Pacific deal value for Kansas be more applicable for a smaller name like Genesee & Wyoming which is now under Brookfield. Given its smaller size, Genesee & Wyoming would be both marketable to a larger buyer and also the current owner's business is to flip.

 

Lastly, (i dont know if it was mentioned here), it was said on news that an earlier all-cash offer for Kansas by Blackstone was rejected.

[John Hjorth]

On 3/22/2021 at 11:50 PM, bizaro86 said:

Quote

fair points and appreciate the contributions.

 

my understanding (from reading long ago and I can't find corroboration of this) is that BNSF is held at National Indemnity for tax efficiency purposes.

 

For tail risk purposes, I would prefer it be held at the Berkshire/holdco level and away from insurance liabilities (I understand we're getting into wacky / tail scenarios)

 

it seems it would not drastically impact NI surplus (to distributeidend out the BNSF LLC interest to Berkshire) if BNSF is counted at a discount to book.

 

On the flip side, this does seem to be a good reason for Berkshire to float a little BNSF and get a public mark. Overcapitalization would become even greater overnight (even if they applied a bigger haircut than to normal stocks).

 

anyways, this is all very tail / not relevant, so I'll shut up.

 

Thats something I've never thought about. Does anyone know how much of BRK net worth is in the insurance subs and how much is at the holdco?

bizaro & thepupil,

At the 2012 AGM, there was a question from Gary Ransom [#31]: "Why is BNSF owned by National Indemnity?". It's on p. 3,303 in Joel's Buffett compilation, and should be possible to find on the CNBC website.

Edited April 13, 2021 by John Hjorth

[boilermaker75]

BNSF was a brilliant acquisition.  period.

 

I remember watching it in slow motion.  BNSF was cash-flowing well its rights to scarce physical pathways across U.S. 

 

After learning about Bill Gates' railroad purchase, I had started following it before Berkshire bought it.  I started paying more attention as Berkshire started buying shares.  As the # of shares purchased kept on going up, I remember realizing that Berkshire is probably looking to purchase it outright.

 

My memory is a little faint, but I think Buffett tried to hide the purchase of shares on that also a little bit.  During the big recession, I remember when price was around $70 per share, I was waiting for it to fall further, and then Berkshire snapped up the remaining shares at $100 per share.

 

Now, I see VZ with its cash-flowing rights to scarce spectrum across U.S. in similar situation and wonder if it might be too big to swallow, or if there is a probability that it might be a way to pick up BRK shares for cheap.  In inflationary times, VZ's rights also don't need as much higher maintenance as would BNSF's rolling stock.

 

Wonder how the ratio of VZ's Market Cap of $230B to Cashflow from operations of $41.8B compares to BNSF's valuation in Buffett's mind.  That $41.8B annual cashflow from operations ideally belongs in Buffett's hands to invest further as he will likely be able to make better investments with it than arguably VZ has been.

 

I remember writing a lot of puts on BNI, from around 60-strike all the way up to 90-strike in 2008-2009. It was like an ATM spitting out cash.

 

I've written some 55- and 56-strike puts on VZ, but at an order of magnitude smaller volume for now than I was doing with BNI.

 

Way to go!

 

If I remember correctly, Berkshire also picked up some BNI shares by writing puts perhaps in an attempt buy shares without raising the price.

 

Did your puts end up getting exercised?  In hindsight, did you make more money by selling puts than you would have made by buying BNI shares at the time to get BRK shares for cheap?

 

Just so that I understand, is your volume with writing VZ puts lower than it was for BNI because you like to be more diversified now or because you're not as sure yet if BRK will acquire VZ as you were with BNI?  If the April 13F shows a lot more VZ share purchases, would that change your mind?

 

I responded yesterday, but now I don’t see my response. So, I’ll try again!

 

I did get put to on BNI and I would turn around and sell covered calls. I never looked at whether I would have been better off just purchasing BNI and waiting for the deal to close. I like writing puts to play these risk arbitrage situations because I set the date for the close rather than buying the stock and not knowing when, or if, the deal will close. Also, I was writing so many puts on BNI I would have been heavily on margin if I had just bought the stock. Yes, I could have gotten heavily on margin if I was put to on everything, but I was staggering in price and time throughout 2009.

 

The best thing about the BRK’s purchase of BNI was the introduction of the B shares. As soon as there were B shares, I started writing puts and accumulating BRKB by being put to. I have gotten to 80% of my portfolio being BRKB, so I am really concentrated.

 

I am keeping my volume of VZ puts low because I am essentially fully invested and don’t want to end up on margin.

 

I was already interested in BNI pre-Buffett. So, I was confident ramping up my put volume. VZ only came on my radar because of BRK’s purchases so I am being more cautious.

 

[Cigarbutt]

...

At the 2012 AGM, there was a question from Gary Ransom [#31]: "Why is BNSF owned by National Indemnity?". It's on p. 3,303 in Joel's Buffett compilation, and should be possible to find on the CNBC website.

In that exchange, there was this component of the response:

From Mr. Buffett: "Very interesting, the rating agencies — at least one rating agency — said they didn’t want to give us any credit for that asset in there [ie a 100% capital haircut], although if we had 20 percent, like we had had earlier, they would have given us full credit for the market value. I didn’t push them too hard on that."

This is called financial and thought process independence on a large scale.

In Q1 2020, the mark to market change in equity positions at NI was simply huge (21% decrease in surplus) but its capital position was still nowhere near being challenged.

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/2-us-p-c-insurers-combined-for-48b-plus-decrease-in-net-unrealized-gains-in-q1-58638162

i wonder if the value of this optionality is underestimated at this point.

[thepupil]

John, thanks for pointing me to page 3,303 of Joel's document. I am very impressed with your recall/searching capabilities!

 

I don't find the answer overly satisfying, but in the end, owning Berkshire is an act of deserved faith/trust, so moving on.

 

And the best place — obviously, the number one place where we like to have money is in the

holding company. And we’ve got about 10 billion in the holding company right now. That, you

have the ultimate flexibility with.

Most of our operating businesses keep more cash around than they need, but it’s there. And

I’m — as long as I have 20 billion someplace, I feel comfortable. We’ll never have anything that

can come up, remotely, that would cause me to lose any sleep as long as I start with the 20

billion.

That’s probably considerably more than we need, but it just leaves us comfortable, and it

makes us feel we can do other things aggressively, as long as we know the downside is

protected.

The — having the railroad in National Indemnity was just something we thought was nice to

have a huge asset like that there that should make the rating agencies and everyone feel

comfortable, and there’s no disadvantage to us.

Very interesting, the rating agencies — at least one rating agency — said they didn’t want to

give us any credit for that asset in there, although if we had 20 percent, like we had had earlier,

they would have given us full credit for the market value. I didn’t push them too hard on that.

But there’s a fair amount of logic, I think, to where things are placed. If we were to make a big

acquisition, it might require shifting some funds from one place to another, but we’ll always

leave every place more than adequately capitalized.

And if you can figure out a way that I could use the life funds more like I can use the propertycasualty funds, call me. I’ve got an 800 number. (Laughs)

CHARLIE MUNGER: Well, two things are peculiar about that casualty operation. One is that it

has so much more capital, in relation to insurance premiums, than anybody else. And the other

is that it has, among the assets in that great surplus of capital, is something like the Burlington

Northern Railroad, which makes it immensely stronger from the viewpoint of the policyholder.

It’s a huge advantage you’re talking about, not a disadvantage.

WARREN BUFFETT: Yeah. Here’s a property-casualty company that has an asset in it that,

unrelated to insurance, will probably make $5 billion pretax or more.

So if we’re writing — well, in that entity, we’re writing less than that — but let’s say we’re

writing 25 billion of premiums. That means we can write at 120, and just our railroad operation will bring us an underwriting neutrality. I mean, it’s a terrific — it’s like having a royalty or

something.

CHARLIE MUNGER: It’s a wonderful position we have.

WARREN BUFFETT: And nobody else has it.

CHARLIE MUNGER: And nobody else has it. And they wouldn’t let us do it if we weren’t so

strong.

 

 

[MarioP]

John, thanks for pointing me to page 3,303 of Joel's document. I am very impressed with your recall/searching capabilities!

 

I don't find the answer overly satisfying, but in the end, owning Berkshire is an act of deserved faith/trust, so moving on.

 

And the best place — obviously, the number one place where we like to have money is in the

holding company. And we’ve got about 10 billion in the holding company right now. That, you

have the ultimate flexibility with.

Most of our operating businesses keep more cash around than they need, but it’s there. And

I’m — as long as I have 20 billion someplace, I feel comfortable. We’ll never have anything that

can come up, remotely, that would cause me to lose any sleep as long as I start with the 20

billion.

That’s probably considerably more than we need, but it just leaves us comfortable, and it

makes us feel we can do other things aggressively, as long as we know the downside is

protected.

The — having the railroad in National Indemnity was just something we thought was nice to

have a huge asset like that there that should make the rating agencies and everyone feel

comfortable, and there’s no disadvantage to us.

Very interesting, the rating agencies — at least one rating agency — said they didn’t want to

give us any credit for that asset in there, although if we had 20 percent, like we had had earlier,

they would have given us full credit for the market value. I didn’t push them too hard on that.

But there’s a fair amount of logic, I think, to where things are placed. If we were to make a big

acquisition, it might require shifting some funds from one place to another, but we’ll always

leave every place more than adequately capitalized.

And if you can figure out a way that I could use the life funds more like I can use the propertycasualty funds, call me. I’ve got an 800 number. (Laughs)

CHARLIE MUNGER: Well, two things are peculiar about that casualty operation. One is that it

has so much more capital, in relation to insurance premiums, than anybody else. And the other

is that it has, among the assets in that great surplus of capital, is something like the Burlington

Northern Railroad, which makes it immensely stronger from the viewpoint of the policyholder.

It’s a huge advantage you’re talking about, not a disadvantage.

WARREN BUFFETT: Yeah. Here’s a property-casualty company that has an asset in it that,

unrelated to insurance, will probably make $5 billion pretax or more.

So if we’re writing — well, in that entity, we’re writing less than that — but let’s say we’re

writing 25 billion of premiums. That means we can write at 120, and just our railroad operation will bring us an underwriting neutrality. I mean, it’s a terrific — it’s like having a royalty or

something.

CHARLIE MUNGER: It’s a wonderful position we have.

WARREN BUFFETT: And nobody else has it.

CHARLIE MUNGER: And nobody else has it. And they wouldn’t let us do it if we weren’t so

strong.

 

I never thought that earning in operating compagnies have an effect on underwriting ratio. So they can write coverage at the same price than Markel or Fairfax and have a better underwriting ratio. Now i understand even more the huge advantage of buying bond like company in the insurance subsidiary.  I always tough that investment revenus wasn't include in the underwriting ratio just in earnings. And I follow Berkshire since 1990  :-\ Every body talking about breaking up Berkshire never mentioned that the insurance operations will be worth less if BRK sell BNSF.

 

 

 

[DooDiligence]

John, thanks for pointing me to page 3,303 of Joel's document. I am very impressed with your recall/searching capabilities!

 

I don't find the answer overly satisfying, but in the end, owning Berkshire is an act of deserved faith/trust, so moving on.

 

And the best place — obviously, the number one place where we like to have money is in the

holding company. And we’ve got about 10 billion in the holding company right now. That, you

have the ultimate flexibility with.

Most of our operating businesses keep more cash around than they need, but it’s there. And

I’m — as long as I have 20 billion someplace, I feel comfortable. We’ll never have anything that

can come up, remotely, that would cause me to lose any sleep as long as I start with the 20

billion.

That’s probably considerably more than we need, but it just leaves us comfortable, and it

makes us feel we can do other things aggressively, as long as we know the downside is

protected.

The — having the railroad in National Indemnity was just something we thought was nice to

have a huge asset like that there that should make the rating agencies and everyone feel

comfortable, and there’s no disadvantage to us.

Very interesting, the rating agencies — at least one rating agency — said they didn’t want to

give us any credit for that asset in there, although if we had 20 percent, like we had had earlier,

they would have given us full credit for the market value. I didn’t push them too hard on that.

But there’s a fair amount of logic, I think, to where things are placed. If we were to make a big

acquisition, it might require shifting some funds from one place to another, but we’ll always

leave every place more than adequately capitalized.

And if you can figure out a way that I could use the life funds more like I can use the propertycasualty funds, call me. I’ve got an 800 number. (Laughs)

CHARLIE MUNGER: Well, two things are peculiar about that casualty operation. One is that it

has so much more capital, in relation to insurance premiums, than anybody else. And the other

is that it has, among the assets in that great surplus of capital, is something like the Burlington

Northern Railroad, which makes it immensely stronger from the viewpoint of the policyholder.

It’s a huge advantage you’re talking about, not a disadvantage.

WARREN BUFFETT: Yeah. Here’s a property-casualty company that has an asset in it that,

unrelated to insurance, will probably make $5 billion pretax or more.

So if we’re writing — well, in that entity, we’re writing less than that — but let’s say we’re

writing 25 billion of premiums. That means we can write at 120, and just our railroad operation will bring us an underwriting neutrality. I mean, it’s a terrific — it’s like having a royalty or

something.

CHARLIE MUNGER: It’s a wonderful position we have.

WARREN BUFFETT: And nobody else has it.

CHARLIE MUNGER: And nobody else has it. And they wouldn’t let us do it if we weren’t so

strong.

 

I never thought that earning in operating compagnies have an effect on underwriting ratio. So they can write coverage at the same price than Markel or Fairfax and have a better underrating ratio. Now i understand even more the huge advantage of buying bond like company in the insurance subsidiary.  I always tough that investment revenus wasn't include in the underwriting ratio just in earnings. And I follow Berkshire since 1990  :-\ Every body talking about breaking up Berkshire never mentioned that the insurance operations will be worth less if BRK sell BNSF.

 

I grok it. Won't bring it up again.