Berkshire Hathaway, General Re and Franchise Risk

Posted: 26 Jul 2005

See all articles by Joseph Calandro, Jr.

Joseph Calandro, Jr.

Fordham University - Gabelli Center for Global Security Analysis

Robert Flynn

Saint Paul Travelers Company, Inc.

Abstract

This paper illustrates how the modern value-investing framework can be employed to more effectively value insurance companies. By utilizing the case study of Berkshire Hathaway's 1998 purchase of General Reinsurance Corporation, this paper will demonstrate how to more effectively construct a valuation, and specifically how to better consider the unique and intangible aspects of insurance company valuation. At approximately $22 billion General Re was Berkshire Hathaway's largest acquisition, and given the losses sustained post buyout, it was also the firm's most troubled. Berkshire Hathaway's experience here is no mark against the unparalleled expertise of its Chairman, investor Warren Buffett, but rather illustrates the unpredictability and volatility of insurance company valuation.

Keywords: Valuation, Insurance, mergers and acquisitions

JEL Classification: G22, G34

Suggested Citation

Calandro, Jr., Joseph and Flynn, Robert, Berkshire Hathaway, General Re and Franchise Risk. Journal of Alternative Investments, pp. 83-95, Summer 2005. Available at SSRN: https://ssrn.com/abstract=759451

Joseph Calandro, Jr. (Contact Author)

Fordham University - Gabelli Center for Global Security Analysis ( email )

531 Hughes Hall
441 E. Fordham Rd
Bronx, NY 10458
United States

HOME PAGE: http://www.linkedin.com/in/josephcalandro/

Robert Flynn

Saint Paul Travelers Company, Inc. ( email )

One Tower Square, 8MS
Hartford, CT 06183
United States
860-954-0391 (Phone)

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