At September 99, Berkshire had, per B share equivalent:
$787 in cash and cash-equivalents and bonds.
$1548 in cash, bonds and equity (including Coke, etc)
$1213 in shareholder equity/book value
$812 in "tangible" shareholder equity (i.e. excluding goodwill)
Did you factor in the insurance float? Some of that money may be used to make insurance claims.
Float for BRK is 22,761 million. What I am interested in is the cost of the float. (Underwriting losses)
Float cost for Gieco is less than 0 (meaning that its underwriting is profitable.)
General Re which is 2/3rds of the float is not (which is Ok, most insurance companies are not profitable by its underwriting, what makes them profitable is its investing in the float.) The underwriting losses should be less than the cost to borrow that money (I use the 30 year TBill).
General Re cost of float 3 qtrs of 1999 is 603 million. If you extrapolate and say the 4th qtr will be the average of the other 3, then the year loss will be 804 (this varies qtr to qtr by the number of claims).
Like I said above, General Re's float was 2/3'rds the total float of BRK. General Re's float is 15,174 million. Its cost (underwriting losses) is 804 million. Divide 804/15,174 and you get the cost of float = .053 (or 5.3%).
So it is like taking a loan for 15,174 million and paying interest of 5.3% which is lower than the 30 year T-bill. Right now, BRK has alot of money in cash and cash equivilents. If down the road, BRK is able to make 15% on its businesses and equities, then General Re's float will make investors 10% on its money if the costs stay constant. So General Re is not, in my opinion, in bad shape. I am concerned about the statement in the last quarterly (Sept) that the Underwriting fees for the re-insurance business is inadequate. I want to know how they are going to respond to this.
Al C. |
