Berkshire Hathaway, General Re and Franchise Risk
Posted: 26 Jul 2005
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: Suggested Citation