2012: Does Berkshire's structure have any downsides?

GARY RANSOM: When Berkshire bought BNSF, it raised the surplus of the property-casualty industry by about 4 percent. It’s unusual to have a property-casualty company own such a large non-operating company.

I’d also characterize your whole organization chart as challenging, a lot of different pieces to it, which gives rise to the issue of capital efficiency.

And I’m just wondering, are there any parts of your organization structure that have any hindrance, whether it’s regulatory or otherwise, to making use of the capital in the best way, generally, and in particular for BNSF?

WARREN BUFFETT: Yeah. Well, I would say that money in our life companies has less utility to us — I’d rather have $100 million in our property-casualty companies than 100 million in our life companies, because we’re more restricted as to what we can do with the money in the life companies.

So — and we’ve got a fair amount of money in life companies, and that money cannot be used as effectively over a period of years, in my view, as money we have in the property-casualty business. It’s a disadvantage to being in the life business versus the PC business.

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 property-casualty 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.