Finance History | Financial Centre, Stamford, 21 December 1998 — US$22 Billion Added Global Reinsurance

At 11:59 p.m. Eastern time on 21 December 1998, Berkshire Hathaway completed its merger with General Re Corporation. The transaction carried total consideration of approximately US$22 billion in 1998 dollars and caused Berkshire to issue roughly 272,200 Class A-equivalent shares. Each General Re share could be exchanged for 0.0035 Berkshire Class A share or 0.105 Berkshire Class B share, making the acquisition primarily an exchange of ownership claims rather than a cash purchase. General Re expanded Berkshire's position in reinsurance, which protects insurers against portions of the losses they have agreed to cover. Premiums arrive before many claims are finally paid, creating investable funds known as float. Float has economic value only when underwriting is disciplined. If premiums and investment income fail to cover claims and expenses, apparent financing can become an operating loss that may remain uncertain for years. The merger therefore joined two forms of capital allocation. General Re's underwriters selected and priced risks, while Berkshire obtained responsibility for investing the funds held between premium collection and claim payment. Scale widened the range of risks Berkshire could assume, but it also increased exposure to rare events, reserve revisions and contracts whose true cost might emerge slowly. Reinsurance accounting depends on estimates, so reported profit can precede the evidence needed to judge whether pricing was adequate. Paying with Berkshire stock reduced the immediate cash requirement and transferred part of the combined company's future results to former General Re owners. Existing Berkshire shareholders, however, accepted dilution and the full consequences of the acquired liabilities. Financial Centre at 695 East Main Street was General Re's executive address when the merger closed. The Stamford complex anchors a US$22 billion transaction in 1998 dollars to the underwriting institution whose premiums, reserves and long-dated obligations made insurance judgment central to Berkshire's financial strength. Photo: Xnatedawgx, CC BY-SA 4.0, via Wikimedia Commons.