Open Letter to Warren Buffett on Subsidiaries (Redux)

You might recall my letter to Warren Buffett, and his response to me.  A number of my readers made some very nice offers to help me on this project.  Many thanks to you all, but I found a way to shrink the size of the project.  Look at this table:

 

Open Letter to Warren Buffett on Subsidiaries (Redux)

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NAIC #

Assets

Liabs

Surplus

Name Group Notes Pct

38865

443

199

244

CALIFORNIA INSURANCE COMPANY AU

0.2%

28258

92

49

43

CONTINENTAL NATIONAL INDEMNITY CO AU

0.0%

14144

347

322

25

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC. AU (2)

0.0%

35246

23

8

15

Illinois Insurance Company AU

0.0%

21962

11

11

Pennsylvania Insurance Company AU

0.0%

20044

1,083

346

737

BERKSHIRE HATHAWAY HOMESTATE INSURANCE COMPANY BHH

0.6%

11673

762

336

426

REDWOOD FIRE & CASUALTY INSURANCE CO BHH

0.3%

10855

1,065

858

207

CYPRESS INSURANCE COMPANY BHH

0.2%

34630

459

321

138

OAK RIVER INSURANCE COMPANY BHH

0.1%

11014

11

4

7

BROOKWOOD INS CO BHH

0.0%

35939

9

2

7

CONTINENTAL DIVIDE INSURANCE CO BHH

0.0%

34274

335

50

285

CENTRAL STATES INDEMNITY CO OF OMAHA CSI

0.2%

82880

18

4

14

CSI LIFE INSURANCE COMPANY CSI

0.0%

22063

19,090

11,072

8,018

GOVERNMENT EMPLOYEES INSURANCE CO GEICO

6.3%

22055

6,444

3,695

2,749

GEICO INDEMNITY COMPANY GEICO

2.1%

41491

1,713

1,051

662

GEICO CASUALTY COMPANY GEICO

0.5%

14137

239

19

220

GEICO SECURE INSURANCE COMPANY GEICO

0.2%

14139

249

36

213

GEICO CHOICE INSURANCE COMPANY GEICO

0.2%

14138

249

41

208

GEICO ADVANTAGE INSURANCE COMPANY GEICO

0.2%

35882

184

70

114

GEICO GENERAL INS CO GEICO

0.1%

22039

15,533

4,840

10,693

GENERAL REINSURANCE CORP GenRe

8.4%

27812

15,069

4,637

10,432

COLUMBIA INSURANCE COMPANY GenRe

8.2%

86258

3,101

2,513

588

GENERAL REINSURANCE LIFE CORPORATION GenRe

0.5%

37362

748

182

566

GENERAL STAR INDEMNITY CO GenRe

0.4%

11967

251

69

182

GENERAL STAR NATIONAL INS CO GenRe

0.1%

38962

190

55

135

GENESIS INSURANCE COMPANY GenRe

0.1%

12319

176

76

100

PHILADELPHIA REINSURANCE CORP GenRe

0.1%

32280

130

61

69

Commercial Casualty Insurance Company GenRe

0.1%

20931

48

26

22

Atlanta International GenRe Runoff

0.0%

97764

20

5

15

IDEALIFE INSURANCE COMPANY GenRe

0.0%

31470

512

363

149

NORGUARD INSURANCE COMPANY Guard

0.1%

42390

416

316

100

AMGUARD INSURANCE COMPANY Guard

0.1%

14702

104

71

33

EASTGUARD INSURANCE COMPANY Guard

0.0%

11981

42

29

13

WestGUARD Guard

0.0%

11843

3,013

1,938

1,075

MEDICAL PROTECTIVE CO MedPro

0.8%

42226

586

173

413

Princeton Ins Co MedPro

0.3%

13589

14

11

3

MedPro RRG Risk Retention Group MedPro

0.0%

20087

127,340

48,479

78,861

NATIONAL INDEMNITY COMPANY NI

61.7%

20079

5,597

1,739

3,858

NATIONAL FIRE & MARINE INSURANCE CO NI

3.0%

62345

10,938

8,700

2,238

BERKSHIRE HATHAWAY LIFE INSURANCE COMPANY OF NEBRASKA NI

1.8%

13070

1,841

692

1,149

BERKSHIRE HATHAWAY ASSURANCE CORPORATION NI

0.9%

39136

1,203

487

716

Finial Reinsurance Company NI Runoff

0.6%

20052

1,419

705

714

NATIONAL LIABILITY & FIRE INS CO NI

0.6%

42137

212

70

142

NATIONAL INDEMNITY CO OF THE SOUTH NI

0.1%

20060

173

49

124

NATIONAL INDEMNITY CO OF MID-AMERICA NI

0.1%

22276

90

19

71

STONEWALL INSURANCE COMPANY NI

0.1%

37923

100

55

45

SEAWORTHY INSURANCE CO NI

0.0%

36048

74

42

32

UNIONE ITALIANA REINS CO OF AMERICA NI Runoff

0.0%

11591

63

51

12

FIRST BERKSHIRE HATHAWAY LIFE INSURANCE COMPANY NI

0.0%

10391

43

32

11

AMERICAN CENTENNIAL INSURANCE CO NI

0.0%

13795

2

2

AttPro RRG Reciprocal Risk Retention Grp NI

0.0%

25895

675

234

441

UNITED STATES LIABILITY INS CO USLI

0.3%

26522

434

160

274

MOUNT VERNON FIRE INSURANCE CO USLI

0.2%

35416

161

59

102

US UNDERWRITERS INSURANCE CO USLI

0.1%

15962

171

23

148

KANSAS BANKERS SURETY CO Wesco

0.1%

Total

223,315

95,444

127,871

106,000

From 10K

This table lists all of Berkshire Hathaway’s domestically domiciled insurance subsidiaries, all 55-56 of them, maybe minus a few intermediate holding companies that are just shells.  The NAIC # uniquely identifies each company for the National Association of Insurance Commissioners.  Then comes the assets, liabilities, and surplus for regulatory purposes.  Then there are the groups that each subsidiary belongs to, and what percentage  of the total statutory surplus each one represents.

The table is sorted by the major subsidiary groups, and then in declining order of surplus.   Here is the key to the groups:

  1. AU = Applied Underwriters
  2. BHH = Berkshire Hathaway Homestate
  3. CSI = Central States Indemnity
  4. GEICO (what else?)
  5. GenRe = General Reinsurance
  6. Guard = AmGuard
  7. MedPro = Medical Protective
  8. NI = National Indemnity
  9. USLI = United States Liability Insurance
  10. Wesco = Wesco Financial

A number of the companies are not writing new business; they are in what is called “runoff.”  Two companies may have the same name “APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC.” but are domiciled in different states.

So, back to my challenge to understand the structure of Berkshire Hathaway.  The above table makes my life easy.  Really, I only need to get the reports of the following companies:

  • Berkshire Hathaway Homestate
  • General Reinsurance
  • GEICO
  • National Indemnity (really, the one most needed)
  • Medical Protective

Those five companies cover ~94% of the statutory surplus of  all of Berkshire’s insurance companies.  I can afford to get that data.  But how should I do it?

  1. I can buy it though the NAIC
  2. I could write Warren another letter asking for his approval to ask each company for their statutory statements.
  3. I could ask each subsidiary for their statements, and see how they react.
  4. I could troll the web, and see if they aren’t hiding out there.  One reader suggested that the Statements are out there on some state insurance department websites, but that would surprise me. That hasn’t been true in the past.

I am thinking of doing #2, but am open to advice.

As an aside, note that the sum of $128 billion of statutory surplus is far more than the $106 billion listed in the latest 10-K.  That is because of capital stacking, which is a form of double counting.  Lower lever subsidiaries surplus gets counted in their intermediate parent companies.  But if I eliminate all of the lower level companies, I only end up with $100 billion.

This is a different approach to Berkshire Hathaway, approaching it as a group of  insurance companies that owns businesses.  It is very different, yet successful.  When I get the data, I hope we all learn a lot.

By David Merkel, CFA of Aleph Blog

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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.