Next Berkshire acquisition speculation

[mjm]

know he did on GEICO

[ValueMaven]

how would Greenberg fit into Berkshire culture?  You have Ajit, Joe Brandon, Kara Raiguel, Todd, plus the AIG guys.  Do we really need him?

[oscarazocar]

1 hour ago, rogermunibond said:

Didn't WEB do something similar with Gen Re.  First buying shares then the whole thing.

 

Berkshire has had stakes in a number of companies they then acquired: GEICO, BNSF, Precision Castparts.

[RunPacoRun]

Fact: In past shareholder letters, WEB wrote that it's easier to buy a reinsurance company than to start one from scratch.

 

Fact: Looking at the balance sheet, the vast majority of its investment assets are in fixed maturities, $106B out of $136B. There is only $14B invested in private equities.

 

Fact: CB's market cap is $106B.

 

Conjecture: Berkshire could be interested in CB's insurance operation. If Berkshire acquired CB at its market cap with cash, Berkshire could liquidate its fixed income portfolio and then invest it in more equities and/or buy other businesses in full.

[charlieruane]

Yes, Chubb would end up being a 10x version of the Alleghany acquisition.

[Xerxes]

These are all wishful thinking, right ? $140B of the cash pile is NOT get used up, no matter how amazing Chubb might be.  
 

That said nothing wrong with a large non-controlling stake. 

[charlieruane]

Yeah, if I had to guess, Berkshire will hold off on elephant hunting until there's blood in the streets, even if a Chubb buyout would work at current prices (or be no more expensive than Alleghany was). Buffett will probably wait for more of a margin safety to deploy that kind of cash. 

 

But, yeah, fun to think about. I wouldn't mind it, really. 

Edited June 13 by charlieruane

[AlwaysDay1]

Can someone explain these insurance acquisition synergies that Berkshire enjoys? Is Berkshire so overcapitalized that it can acquire similar insurance companies and liquidate their fixed-income portfolios, thereby receiving a huge portion of their acquisition price back? And is this simply because Berkshire knows it has the liquidity/reserves to pay any liabilities/claims over time? 

[John Hjorth]

7 hours ago, AlwaysDay1 said:

Can someone explain these insurance acquisition synergies that Berkshire enjoys? Is Berkshire so overcapitalized that it can acquire similar insurance companies and liquidate their fixed-income portfolios, thereby receiving a huge portion of their acquisition price back? And is this simply because Berkshire knows it has the liquidity/reserves to pay any liabilities/claims over time? 

 

Have you studied the Berkshire 10-Qs and 10-Ks with regard to information about regulatory dividend restrictions for the insurance companies inside Berkshire, and if you have, what does that tell you?

[AlwaysDay1]

@John Hjorth I have not and do not consider myself well versed in understanding the insurance business. Any help/color is much appreciated

[LC]

Regulators will essentially control the capitalization of the various insurance agencies. That said, Berkshire has in the past been successful taking over insurance books and re-aligning the investment portfolio to "something more Buffett-esque". Regulators generally have allowed it given Berkshire's sterling reputation.

 

The play here as I see it:

1- Buy well functioning insurance companies with significant long-term customer relationships, who have a conservative investment book, at reasonable valuation multiples.

2- Leverage the existing customer relationships and re-align the investment portfolios, perhaps repricing some coverage (thanks, Ajit!)

3- Sit back and sip Coca-Cola