Open Letter to Berkshire Hathaway, An Inquiry into Statutory Books

Berkshire Hathaway B shares Warren BuffettBy Mark Hirschey (Work of Mark Hirschey) [CC BY-SA 2.0], via Wikimedia Commons

Open Letter to Berkshire Hathaway, An Inquiry into Statutory Books[Address]

[Phone]

1 March 2013

Dear Mr. Buffett,

Four years ago, I contacted the IR department at AIG to ask for copies of all the 2008 statutory books for all the insurance subsidiaries.  To my surprise, they sent them, 60 pounds worth, and I wrote a report explaining how almost all of the domestic life subsidiaries had to be bailed out because of a funky securities lending agreement that allowed AAA subprime RMBS to used as collateral in place of T-bills.  The report was cited by SIGTARP in their review of the AIG bailout.

I am writing to you asking for copies of the 2012 statutory books for Berkshire Hathaway.  My purposes are different than with AIG.  You’ve done something unique with Berkshire Hathaway.  No one else has created such a multifaceted conglomerate, much less one with well-run insurance companies at the core, providing funding.

I have the capability of understanding the documents and doing a good job with them.  I am an actuary as well as a value investor, and have been a buy-side analyst in a hedge fund where I focused on the insurance industry.  (Todd Combs and I interacted a little when I was a buy-side analyst.  You chose well.)

My clients and I own “B” shares of Berkshire Hathaway, so I am a small part of the Berkshire family.  If you are willing, please send me of the 2012 statutory books for Berkshire Hathaway.

Sincerely,

David J. Merkel, CFA

Principal, Aleph Investments

Writer at the Aleph Blog

And the deservedly terse handwritten response:

David, Sorry we get a lot of requests & it would be burdensome for a small staff to respond to these.

Warren

My Thoughts

Buffett is right, and I should have thought harder.  Everything BRK does is disaggregated, even filing Statutory Statements.  I am mentally stuck in the world of when I was an actuary engaged in financial reporting, where we would have a room where we would gather all the data to go to the states, rating agencies, etc.  I had to do that many times.

But Berkshire acts like a bunch of unaffiliated companies, and files their data separately.  To the best of my knowledge, that means I would have to ask 37 different entities for their Statutory Statements.  Here they are:

Company Name State of Domicile NAIC Number
CALIFORNIA INSURANCE COMPANY CA

38865

COMMERCIAL CASUALTY INSURANCE COMPANY CA

32280

CYPRESS INSURANCE COMPANY CA

10855

FINIAL REINSURANCE COMPANY CT

39136

GENERAL RE LIFE CORPORATION CT

86258

GENESIS INSURANCE COMPANY CT

38962

IDEALIFE INSURANCE COMPANY CT

97764

NATIONAL LIABILITY & FIRE INSURANCE COMPANY CT

20052

AMERICAN CENTENNIAL INSURANCE COMPANY DE

10391

GENERAL REINSURANCE CORPORATION DE

22039

GENERAL STAR NATIONAL INSURANCE COMPANY DE

11967

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC. IA

14144

CONTINENTAL INDEMNITY COMPANY IA

28258

ILLINOIS INSURANCE COMPANY IA

35246

MEDICAL PROTECTIVE COMPANY (THE) IN

11843

GEICO CASUALTY COMPANY MD

41491

GEICO GENERAL INSURANCE COMPANY MD

35882

GEICO INDEMNITY COMPANY MD

22055

GOVERNMENT EMPLOYEES INSURANCE COMPANY MD

22063

SEAWORTHY INSURANCE COMPANY MD

37923

BERKSHIRE HATHAWAY HOMESTATE INSURANCE COMPANY NE

20044

BERKSHIRE HATHAWAY LIFE INSURANCE COMPANY OF NEBRASKA NE

62345

CENTRAL STATES INDEMNITY CO. OF OMAHA NE

34274

COLUMBIA INSURANCE COMPANY NE

27812

CSI LIFE INSURANCE COMPANY NE

82880

NATIONAL INDEMNITY COMPANY NE

20087

OAK RIVER INSURANCE COMPANY NE

34630

REDWOOD FIRE AND CASUALTY INSURANCE COMPANY NE

11673

STONEWALL INSURANCE COMPANY NE

22276

ATLANTA INTERNATIONAL INSURANCE COMPANY NY

20931

BERKSHIRE HATHAWAY ASSURANCE CORPORATION NY

13070

UNIONE ITALIANA REINSURANCE COMPANY OF AMERICA, INC. NY

36048

AMGUARD INSURANCE COMPANY PA

42390

EASTGUARD INSURANCE COMPANY PA

14702

NORGUARD INSURANCE COMPANY PA

31470

PHILADELPHIA REINSURANCE CORPORATION PA

12319

UNITED STATES LIABILITY INSURANCE COMPANY PA

25895

How do you get the data in this case?

1) I suppose I could write each one and ask, but there is no guarantee that many would listen or act.

2) I could buy it from the NAIC, but it would run to around $700, and I am not doing that for a mere blog post.  Most insurers give you the statutory statements if you ask (in PDF form).  I never pay for Stat statements; I believe that they should be available in electronic form for free, or a nominal fee.

Maybe someone would want to pay it in exchange for credit on the series of articles that would flow from it?  Maybe SNL would pay for an article from me?  Or Bloomberg?  Or a competitor?  Or the sell-side wanting a guest piece? Or…

3) I could ask my readers for ideas.

Why would anyone care about this?

1) Alice Schroeder wrote the first sell-side analysis of Berkshire Hathaway.  In it she stated that the company had a waiver from the Risk-Based Capital rules from the states.  If true, that is quite a regulatory advantage, and I would want to verify that.  Current regulators might care.

2) Buffett is clever, and has the holding company and well-run insurers owning industrial, utility and service businesses.  If this is done well, and it is quite an accomplishment, because the alphas of prudent underwriting and ownership of well-run businesses get added together on one capital base.  Others might like to duplicate it.  I know that I have gotten pitches from consultants touting such ideas.

Anyway…

Well, it was worth a try.  Marc Hamburg did not return my phone calls, but I understand.  BRK is different from other companies — even the insurance is done subsidiary by subsidiary.  If any of you have ideas, I am all ears.

On the bright side, I do have a short note from the guy I have learned so much from.  I may frame it… ;)

Full disclosure: long BRK/B

By David Merkel, CFA of Aleph Blog

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About the Author

David Merkel
David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

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