Billionaire investor Warren Buffett and his right hand man, Charlie Munger, expressed confidence in embattled New York insurance company American International Group Inc. as they addressed Berkshire Hathaway Inc. shareholders Saturday.
Federal regulators are investigating a reinsurance transaction between AIG and Berkshire subsidiary General Reinsurance Corp. that appeared to boost AIG’s reserves when markets were uneasy about the company’s outstanding liabilities.
AIG has acknowledged that its accounting for the transaction with Gen Re was improper, and General Re continues to be part of the investigation.
Buffett, chairman and chief executive of Berkshire, said he could not comment on what he told regulators April 11 about AIG and Gen Re, nor could he comment on what others with Berkshire might have told federal officials.
However, Buffett said he could comment broadly on the probe. Asked about the status of AIG, Buffett said he would read with interest any more disclosure from AIG when it files restated earnings with the Securities and Exchange Commission.
Munger, Berkshire’s vice chairman, went further, saying “Whatever comes along, people are going to find that a lot of what was done over the years was right at AIG.”
Buffett did not disagree, and said former AIG chief executive Maurice Greenberg had built a great company.
“He became the most important figure in the property casualty business,” Buffett said.
Investigators have said Buffett is not a target of the probe. When asked to answer questions about AIG’s activities, Greenberg refused, invoking his Fifth Amendment right against self-incrimination.
General Re, which Berkshire acquired in 1998, has been the object of several recent reinsurance investigations, including one in which a U.S. attorney’s office in Virginia has been probing Reciprocal of America, a former liability insurer of doctors, hospitals and lawyers.
Responding to another question, Buffett said the key is whether someone knowingly participated in any accounting fraud. His insurance companies provide reinsurance — which helps spread policy risk — to hundreds of other insurance companies and cannot always answer to what those firms do with those contracts, Buffett said.
“They could be doing anything with the accounting,” Buffett said.
Buffett and Munger answered questions posed by many in the crowd of 19,000 shareholders gathered in an auditorium in Omaha for their annual meeting.
Among other things, Buffett said his company will be up about $400 million in pretax earnings in its first quarter earnings to be announced May 6 compared with the same period last year, bolstered by insurance and operating revenues. Berkshire will lose about $310 million in currency trading, however, because of a stronger dollar over the quarter, Buffett said. Because of that, investments overall will suffer about $120 million in losses, Buffett said.
Many of Buffett’s investments, which include large holdings in Coca-Cola and American Express and ownership of candy, jewelry and furniture companies, have been funded by money that his insurance businesses hold in premiums not yet paid out on claims.
Buffett said he is dismayed that he is holding about $45 billion in cash with no major acquisitions in sight. Buffett said Berkshire is poised to announce one acquisition in the insurance field that will be worth nearly $1 billion.
“We’d love to have one in the $5 billion to $10 billion range,” Buffett said. “At the moment we’ve got more money than brains, and we hope to do something about that.”
Buffett said Berkshire’s board will discuss the potential need to offer a dividend for the first time in the company’s history when it meets Monday. It would not happen in the near term, Buffett said. But if Berkshire cannot find good investments for its cash over the next few years, shareholders should have some access to that money, Buffett said.
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