Report Berkshire Hathaway Interested in ERC

November 11, 2002

Warren Buffet likes reinsurance – at least if a report by Bloomberg is correct. Berkshire Hathaway’s boss is said to have held discussions with General Electric to acquire Employer’s Re (ERC), a move which would create the world’s largest global reinsurer.

Neither Berkshire nor GE have commented on the report, but indications are that they have reached a point where they’re already discussing price. Buffet is reportedly offering a good deal less than the $8 billion GE wants for ERC.

In fact GE hasn’t even confirmed that it’s for sale, but the signs are there. CEO Jeff Immelt, who took over from the legendary Jack Welch as GE’s boss last year, is reportedly unhappy with the reinsurer’s performance. It lost $156 million in the third quarter and has had to strengthen its reserves several times this year. It’s also considered to be somewhat incompatible with Immelt’s vision for GE’s future, primarily due to the instability of its earnings.

GE was reported to have held talks with Swiss Re earlier this year, and has restructured its reinsurance operations into a separate group, making them easier to sell or spin-off. The rating agencies, have noted the changes, and indicated that ERC appears to be less than the “core holding” it once was. Downgrades have followed.

Combining ERC with Berkshire’s General Re, National Indemnity and its other reinsurance operations would create a powerhouse industry leader with over $18 billion in net reinsurance premiums written, based on 2001 figures, taking over the top spot from Munich Re and Swiss Re by over $2 billion.

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