2001: What's GenRe's competitive advantage?

AUDIENCE MEMBER: I’m Chip Mann (PH) from Minneapolis, Minnesota. Thanks again for this open format and your direct answers to our questions.

You’ve talked a bit about the super-cat class level of risk that you write. Could you share your thoughts about expanding the competitive advantage and the scale advantages at General Re, referring more to their traditional or historical franchise and the type of contracts they would write?

WARREN BUFFETT: Yeah. General Re was a — is a — and General Re and Cologne are a very different operation than the historical reinsurance business of National Indemnity.

National Indemnity had nothing like their distribution system. And they have a — and a knowledge base for a whole different form of reinsurance than we could ever accumulate at National Indemnity.

General Re did not — nor Cologne — did not take —retain — as much risk as we’re quite willing to retain because their financial profile was different before they joined Berkshire.

So it’s an opportunity for us, for two reasons, to make more money in that respect than General Re might’ve made on its own.

One is we can retain much bigger portions of what they would write in the first place, and which they’ve been writing over the years, but which they’ve laid off with other companies in what has the fancy name of retrocessionals.

And a second point is that they have a distribution capacity that may well have the ability to deliver to us a lot of big risks that we might not otherwise see. And that, in the past, they might not otherwise have had a good outlet for.

So there is — there’s really true — I hate the word — but there’s really true synergy in General Re Cologne being married to Berkshire Hathaway. And you’ve put your finger on, really, one point that has two aspects to it.

And we haven’t fully exploited that. We probably won’t fully exploit it, you know, 10 years from now.

But it’s very much in my mind and the minds of the managers at General Re and Cologne that we have expanded opportunities, simply because Berkshire is willing to take on more risk than just about anybody in the world knowingly takes on.

Although we think some other people take on a lot more risk, unknowingly.

But in terms of writing a specific contract, we are both bigger and faster, I think, than anybody in the world. In effect, we have some of the abilities that used to be associated with going to a Lloyd’s of London.

I mean we can — now, I don’t know how true all that was over the years, because I wasn’t around there then. But we really can give an answer on something in an hour that other companies wouldn’t know what to do with in a month. And that should be a plus for us in the world.

Charlie?

CHARLIE MUNGER: Nothing to add.