2022: How does Berkshire underwrite nuclear risks?
BECKY QUICK: This question is, there’s a two-part question. It’s for Warren and Ajit on the first part and for Greg on the second. It comes from Roger Cleffman (PH).
He says, “Several years ago Mr. Buffett was quoted that a nuclear attack is the greatest risk to Berkshire Hathaway Insurance.
“Given the present circumstances, what would the fallout be on Berkshire Hathaway Insurance if a nuclear event occurred in the populated world?
“And then secondly, for Greg, has Berkshire Hathaway Energy suffered any physical or cyberattacks? And irrespective of that, has any special hardening of security been put into place?”
WARREN BUFFETT: Yeah. Well, the first half, every day since August of 1945 — and accelerating dramatically when a second large country had the ability to kill millions of people — which has been magnified by an incredible factor through this, that there is a risk every day.
It’s a very, very tiny risk. Nut as Ajit will, or anybody at this table could tell you, if you roll — well, they had a pair of dice out at the Desert Inn in Las Vegas for a while under a glass thing. And some guy had thrown 32 passes in a row. And I don’t know, maybe the odds are eight million to one against that or four million to one — four billion to one against it.
But, you know, if you just keep rolling the dice, you know, everything will happen. I mean, if you get 330 million Americans out tomorrow, every American says, heads or tails, and they do it every day, after 10 days, you know, you’ve got 330,000 of them that have called the flip 10 times in a row.
And if you do it 10 more days, you’ve still got a bunch of people who’ve done it 20 times in a row. And they really think they have learned how to control the flip.
Well, the answer is the world is flipping a coin every day as to whether people who can literally destroy the planet as we know it, you know, will do it.
And unfortunately, the major problem is with people that have large stocks of nuclear weapons and ICBMs.
And when they talk about using tactile [tactical] nuclear weapons because somebody will be upset because they’re losing a war, I mean, does anybody think that somebody that’s willing to kill, you know, hundreds of thousands of people with tactile weapons, you know, why do they stop?
It is a very, very, very, very dangerous world. And —
CHARLIE MUNGER: But we don’t have any way of —
WARREN BUFFETT: No —
CHARLIE MUNGER: — protecting —
WARREN BUFFETT: There’s no way to pro —
CHARLIE MUNGER: — against a big nuclear attack.
I know a man who said, I know what I’m going to do if there’s a nuclear war. I’m going to crawl under the table and kiss my ass goodbye. (Laughter)
WARREN BUFFETT: Well, yeah. And Charlie’s in charge of loss control at Berkshire. (Laughter)
We have no solution for it.
CHARLIE MUNGER: No, we don’t.
WARREN BUFFETT: And there isn’t any solution for it.
And, you know, it’s extraordinary when you think about it, in August of 1939 — September 1st is, you know, when Hitler moved into Poland — but nobody really knew that much about it here. I mean, you know, the news you got you got from the news reel you went to because the theater was air conditioned, you know, or something.
So, if I went to the movies — which you wanted to do in the summer because it was air conditioned in August of — well, September 1st in the case of the actual movement into Poland — but, you know, it was a few people on a screen and some guy with an authoritative voice telling you that German forces just moved into Poland and a picture of a few tanks, maybe. And it was over in a minute.
Now of course all day, every day you see people dying who you very much empathize with, and it could be you instead of them. And it’s just so different.
But in August of 1939, there was a letter sent to President [Franklin] Roosevelt about a month ahead of time.
And why did he get that letter? He got the letter because Hitler was so anti-Semitic, basically.
He drove all the Jews that could see it coming out of Germany. And among them were some great scientists.
And Leo Szilard, who was obviously from Hungary, from somehow he got driven out. Einstein got driven out.
And Leo Szilard lands eventually in the United States. And he writes a letter to tell the president of the United States, Franklin D. Roosevelt, that there’s a bunch of uranium moving different ways or whatever it may be. I don’t know anything about physics, zero. I don’t know about the off and on sign of it.
But in any event, I know what the letter did. Because he writes a letter and says, you know, something big may happen in physics and America better get to it first.
But then he has the problem of, how do I get it to Roosevelt? You know, Leo Szilard, who’s he to the president of the United States?
So, he figures if he gets Einstein to cosign it that the president will pay attention. And he’s right. So (laughs) he goes and gets Einstein and the two of them send the letter.
And they send it to Roosevelt. And they wouldn’t necessarily have been in the United States if Hitler hadn’t had the crazy views about Jews, basically.
And so anyway, that letter went, and we developed the atom bomb before anybody else did.
And it was a very, very fortunate development that Leo Szilard and Einstein happened to end up in the United States rather than perhaps be someplace else. Who knows?
But the accidents of history — and there’s going to be more accidents in connection with atomic weapons.
You know, we’ve come close for various times. I mean, we had the geese flying over, you know, somewhere up north and NORAD gets a crazy signal.
And we’ve had wrong training tapes placed over in the Soviet Union or some, you know, and it looks like things are going on.
We can’t do anything about it. And that is one risk that Berkshire absolutely has no interest in, even though you can say everybody in the world should have an interest. But it doesn’t do us any good — you know, the feeling is that it doesn’t do us any good to think about it.
But that doesn’t stop the fact that there are two powers in the world that, through miscalculation of the other’s intentions, through all kinds of things, you know, have come close in the past. And Charlie and I lived through the Cuban Missile Crisis.
And, you know, we knew there was some chance that weapons of mass destruction would be used.
And believe me that there’s a lot more bad that can happen.
And humanity has not really come up with a counterforce to technology. I mean, back in the caveman ages, if you were a sociopath or something, you threw a rock at the guy in the next cave, you know, or something. I mean, it was sort of proportional.
And we kept developing, and there was this breakthrough where technology has totally outrun humanity. And we’ll see what happens. But so far so good.
And Berkshire does not have an answer, though. There are certain things we don’t write policies on because we wouldn’t be able to make good on them anyway, you know, for that matter.
And everybody would know we wouldn’t be able to make good on them.
You have that risk, and there’s nothing Berkshire can protect you against. And we’ve been very lucky so far.
Ajit, do you ever get any questions, in terms of —
AJIT JAIN: In addition to all what Warren has said, in terms of the chance of something like this happening, the additional thing that concerns me about a nuclear situation is my — my lack of ability to really estimate what our real exposure is in the event of a nuclear event.
When you’re talking about, you know, other big exposures we have: earthquake and hurricane and cyber, I can, with some reasonable degree of accuracy, have a point of view in terms of how large our exposures can be, and how big our loss can be.
When it comes a nuclear thing, you know, I sort of surrender.
You know, it’s very difficult for us to estimate how bad “bad” can be.
Very many different lines of exposures will be affected by it. And even though, in almost all our kind of contracts, we try and exclude nuclear as a covered peril, nevertheless, if something like that were to happen, I’m fairly positive that the regulators and the courts will hold it against the insurers, and they’ll rewrite the contract and we’ll be required to pay.
For example, one thing which is already being talked about: we issue what are called “fire policies.” And these fire policies try and exclude nuclear as a covered peril.
But there are several regulators who feel that, gee, if it’s a fire policy, and if the nuclear attack causes a fire, then how can you exclude fire? And you better include fire.
So, you know, debates like that we will have to live with, and it’ll be very difficult for the insurance industry to fight back with the regulators and the court systems in terms of what is covered and what is not covered.
WARREN BUFFETT: And there won’t be any regulators or anybody else. So — (Laughter)
We’ll leave it to a million years of reconstruction. (Laughs)
Einstein said that, “I know not what the weapons will be for World War III. But I know the weapons for World War IV will be sticks and stones.”
You know, there’s a lot of things that — I mean—
If you’re worried about the effect of nuclear attacks, you got other things to worry about than the value of your Berkshire, I’ll put it that way. (Laughter)
And what other cheerful things can we have?