Warren Buffett recently gave the WSJ a letter he wrote in 1976 to one of Berkshire’s top executives. In the letter, Warren Buffett explained his reasoning behind the GEICO purchase.
Below readers can find the entire letter, enjoy!
Buffett’s Private Analysis of Geico in 1976
July 22nds l976 Geergelh Young, National indemnity Company, 302% Hersey Street, Omaha, Nebraska. 68131. Best George: - Thanks very much for your memo of July 19th segerdine GEECG which I believe summarises well the yroblems attendant to the specific progerty treaty we are discussing, as well as the es nu ?cral problems associated with reinsurance of any type at 83180. I still snawillieg to explore further the GEICO property treaty - if they subsequently decide that it fits their needs and today committed to Jack Byrne that we would take a he qucta shasc of their entire book. This increase from .8 of was pursufnt to his request in order to help him attain the 25% mark by the share? holders meeting tomorrow.' I consider the overall quota share to be an acceptable but not exciting piece of business. Under normal conditions we would take nothing like obviously, since that makes it by far the largest reinsurance treaty on our books, and involves substantial risks along with a limited prospect of erofit. I also do not like the feature that provides for a credit to GEICO for interest earn- ings on funds held by us. In effect, we are making this contract ?asher one in size for the reinsueance department, whereas the contractual terms make it less attractive than most of our other contracts. However, I have three reasons for taking this unusually lasge portion of the quote share arrangement, and these same reasons also apply to my interest in the property treaty.. l. I hogs it is not a governing factor in any way, but I do have some sentimental reasons for wishing GEICO to sue? vive. GEICO has enumerated all of the hard headed reasons, such as the State Financial Guaranty funds; etc. I just have "1.7391231 v.14! 4-.
See full Buffett 1976 Letter Explaining GEICO Purchase letter in PDF format here.