Berkshire Hathaway [BRK] is a unique company. You have a property-casualty insurance giant owning many businesses directly through insurance subsidiaries, including huge businesses like a Class 1 Railroad — BNSF.
Yes, National Indemnity owns BNSF in entire, and many other businesses as well. I thought the pre-crisis org chart of AIG was complex — because of the many industries that it covers, BRK is far more complex. In the 2012 statutory statements, it runs for 22 pages. Let me list the top-level subsidiaries, and any significant lower level subsidiaries they own.
- Affordable Housing Partners (common for reducing taxes w/ section 42 housing)
- Albecca (Larson-Juhl)
- AU Holding Company (Applied Underwriters
- Ben Bridge Corporation
- Benjamin Moore
- Berkshire Hathaway Credit Corp (BH Media — all the little newspapers)
- Berkshire Hathaway Finance Corp
- BH Columbia Inc (Columbia Insurance, Medical Protective Corp [which owns Lubrizol debt])
- BH Housing LLC
- BH Shoe Holdings, Inc.
- BH-IMC Holdings B.V. (“Iscar”)
- BHSF (SF = Scott Fetzer)
- Blue Chip Stamps, Inc. (Really, still around?)
- Borsheim Jewelry Company
- Brookwood Insurance Company
- Business Wire, Inc.
- Central States of Omaha Companies, Inc.
- CORT Business Services Corp
- CTB International Corp.
- Cypress Insurance Company
- Forest River, Inc.
- Fruit of the Loom, Inc.
- Garan, Inc.
- Gateway Underwriters Agency
- General Re Corporation (seems to own much of Fruit of the Loom)
- Helzberg’s Diamond Shops
- International Dairy Queen
- Johns Manville Corp
- Jordan’s Furniture
- Justin Brands (Acme Brick)
- Marmon Holdings
- MidAmerican Energy Holdings (CalEnergy, HomeServices of America, Magma Power, NV Energy, Pacificorp)
- MiTek Industries
- MS Property
- National Fire & Marine Insurance Company
- National Indemnity (Flightsafety, BNSF, CLAL, GEICO, Clayton Homes, McLane, TTI)
- National Liability & Fire Insurance Company
- Nebraska Furniture Mart
- NetJets, Inc.
- Northern States Agency, Inc.
- OTC Worldwide Holdings (Oriental Trading Company)
- Precision Steel Warehouse, Inc.
- R. C. Willey Home Furnishings
- Richline Group, Inc.
- See’s Candy Shops
- Shaw Industries Group
- Star Furniture Company
- The Buffalo News, Inc.
- The Fechheimer Brothers Company
- The Lubrizol Corp
- The Pampered Chef, Lrd.
- US Investment Corporation
- Wesco-Financial Insurance Company
- XTRA Corp
BRK is huge, and Buffett prefers owning whole companies to portions of companies, because then the entire free cash flow is available to him, not just the dividends.
The first question to answer is why does Buffett have some industrial companies inside his insurers, and some not? That has to do with risk-based capital. P&C insurers have to put up capital equal to 22.5% on equity of affiliated insurers, and 15% on non-affiliated common stocks, and 20% on Schedule BA investments that are similar to stocks. These are more liberal than the standards for life companies, which have a 30% charge on stocks. (Which doesn’t make sense, because life insurers have longer balance sheets, and have a better ability to hold equities, but I digress…)
But even if they have to put up capital to own the companies, BRK has a negative cost of capital inside its insurers, because they make underwriting profits. What a business — make money on insurance, and on businesses owned by the insurance subsidiary.
One more thing about BRK’s insurance subsidiaries — in general, because they have so much asset risk, they don’t write as much insurance as other companies of their size would.
Tomorrow, I will write part 2 on this, regarding the one anomaly I found going through BRK’s statutory books, the Harney Investment Trust. Till then.
Full disclosure: long BRK/B for clients and me
By David Merkel, CFA of alephblog