Finance History | Munich Re, 31 December 2010 — Berkshire Held 10.5% of a Global Reinsurer

At 31 December 2010, Berkshire Hathaway owned 19,259,600 Munich Re shares, representing approximately 10.5 percent of the global reinsurer. Berkshire reported an actual purchase cost and tax basis of US$2.896 billion in 2010 dollars and a year-end market value of US$2.924 billion. The position therefore stood only about US$28 million above cost on the reporting date despite its multibillion-dollar scale. Reinsurance transfers portions of insurance risk from primary carriers to another balance sheet in exchange for premium, allowing insurers to manage capital and the severity of large losses. The business can generate investable funds because premiums arrive before many claims are paid, but that float is valuable only when underwriting prices adequately cover losses and expenses. Catastrophes create clustered obligations, so earthquakes, storms and other events can make several policies and regions produce losses at the same time. Long-tail liabilities add uncertainty because the final cost of some claims may emerge years after the original premium was set. Munich Re's global diversification could spread exposures across products and geographies, yet diversification could not eliminate bad pricing, model error or worldwide capital-market stress. The investment also placed Berkshire, itself a major reinsurer, in the position of owning a substantial minority stake in another company operating across overlapping risk markets. Ownership of 10.5 percent provided economic exposure without making Munich Re a Berkshire subsidiary or giving Berkshire the operating control associated with a full acquisition. Munich Re disclosed in 2010 that Berkshire described the investment as intended to generate trading profits rather than implement strategic objectives. By the end of 2014, Berkshire held 20,060,390 shares, or 11.8 percent, with reported cost of US$2.990 billion and market value of US$4.023 billion in 2014 dollars. Berkshire reduced the holding below 10 percent in September 2015, underscoring that even a large position could be managed as a marketable security rather than permanent control. The photographed Königinstraße headquarters is a public corporate-site anchor, not the place where the shares were purchased or held in custody. Its long institutional facade represents a business whose true liabilities and earning power depend on promises extending far beyond the building. Photo: Ricardalovesmonuments, CC BY-SA 4.0, via Wikimedia Commons.