Monday, April 13, 2020

Whitney Tilson: "Berkshire's Exposure To Business Interruption Insurance" (BRK)

From ValueWalk:
Whitney Tilson’s email to investors discussing Berkshire‘s exposure to business interruption insurance; Berkshire’s first-quarter 2020 earnings estimates; Whiting Bosses Got $14.6 Million Bonuses Before Bankruptcy; China data; Comparisons to South Korea, Italy, and Spain.
Berkshire's Exposure To Business Interruption Insurance
1) I continue to believe that Berkshire Hathaway (BRK-B) is America's No. 1 Retirement Stock.
But some folks are staying away because they're worried about the company's potential exposure to "business interruption insurance" and perhaps workers' compensation insurance as well.
The short answer is that nobody knows for sure what Berkshire's exposures are related to the current crisis until it reports earnings, but I'm not worried. With insurance companies, more than almost any other type of business, investors have to trust management – and there are no two people I trust more than Berkshire's CEO Warren Buffett and Vice Chairman of Insurance Operations Ajit Jain.
I'd say the same of Microsoft (MSFT) founder Bill Gates, who's been thinking about pandemic as long and as presciently as anyone. He and Buffett have been best friends since the day they met 29 years ago, and Gates served on Berkshire's board for the past 16 years until recently resigning to focus on his work at the Bill & Melinda Gates Foundation.

And Buffett himself has been thinking about pandemic risk for more than a decade, as you can see in this 2009 article: Warren Buffett bets on pandemic insurance. Excerpt:
Berkshire would consider writing insurance policies for pandemics, including one that Buffett said assumes the U.S. mortality rate rises by 25% in 2010, equivalent to roughly an additional 600,000 deaths.
The company paid out billions of dollars on claims losses from Hurricane Katrina, but will still assume big risks for the right price.
"You could get us to quote a policy on the present potential pandemic," Buffett said, though "you may not like" how much Berkshire would charge.
"You need someone with a real sense of the probabilities" to write such policies, he said.

In short: sleep easy, Berkshire shareholders...MORE
P&C: Business Interruption Insurance—Here Come the Lawyers