36 THE WARREN BUFFETT WAY
corrective maneuvers were successful. In 2002, after f ive years of losses,
GenRe reported its f irst underwriting prof it, prompting Buffett to an-
nounce at the 2002 annual meeting, “We’re back.”
Warren Buffett, as is well known, takes the long view. He is the f irst
to admit, with his trademark candor, that he had not seen the prob-
lems at GenRe. That in itself is interesting, and oddly ironic, to Buf-
fett’s observers. That such an experienced hand as Buffett could miss
the problems demonstrates the complexity of the insurance industry.
Had those problems been apparent, I have no doubt Buffett would not
have paid the price he did for GenRe. I’m also reasonably certain he
would have proceeded, however, because his line of sight goes to the
long term.
The reinsurance industry offers huge potential, and a well-run
reinsurance business can create enormous value for shareholders. Buffett
knows that better than most. So, even though GenRe’s pricing errors
created problems in the short run, and even though he bought those
problems along with the company, this does not negate his basic con-
clusion that a well-managed reinsurance company could create great
value for Berkshire. In a situation such as this, Buffett’s instinct is to f ix
the problems, not unload the company.
As he usually does, Buffett credits the company’s managers with
restoring underwriting discipline by setting rational prices for the poli-
cies and setting up suff icient reserves. Under their leadership, he wrote
in the 2003 letter to shareholders, General Re “will be a powerful en-
gine driving Berkshire’s future prof itability.”^8
At this writing, General Re is one of only two major global rein-
surers with a AAA rating. The other is also a Berkshire company: the
National Indemnity reinsurance operation.
Berkshire Hathaway Reinsurance Group
The National Indemnity insurance operation inside Berkshire today is a
far cry from the company that Buffett purchased in 1967. Different,
that is, in operation and scope, but not in underlying philosophy.
One aspect of National Indemnity that did not exist under its
founder, Jack Ringwalt, is the reinsurance division. Today, this division,