Dec

1

Just like with "the Fed wants to accomplish this and that's why they are doing QE" there are many possible explanations for his behavior. In this case, he may very well care about his insurance business. Overall he may want to ingratiate himself to those who hold political power because that always brings benefits, or he may care about his "legacy", or he may care about keeping his company whole after his death, or he is being threatened with whatever for his misdeeds, or he likes Gates' approval, or he is a self-hating liberal feeling guilty for his success because he knows or thinks he "cheated". It's pathetic to watch him beg for higher taxes, but his motivation may be complex.

Anonymous clarifies:

First, a history of his acquisitions of whole companies show that he loves buying them during a liquidity crisis for the company being acquired. This history of bottom feeding or capitalizing on others misfortunes seems to me to be the major reason for his lobbying for the estate tax.

General RE is one of the biggest reinsurance companies in the world.

While the actuarial reserves may not be as fuzzy in life as in P&C they definitely is some room to maneuver. Most (by number not size) life insurance do re insure the largest policies. Those purchased by estate taxes purposes are generally the largest life policies out there. An

While I do not have any idea what percent of the premium or profits the life reinsurance is for General Re, I would be shocked if this is not considerable amount. And while perhaps not a large percent of profits, I suspect the expected return on required capital and risk is sigficant Further, for the following reasons, this probably is large and tempting:

1. The reinsurance business gets regulatory arbitrage through regulatory body shopping, that a state domiciled company can not. This is leaves considerable room for reserves differences. As the "finite reinsurance" and AIG debacle shows. This can be complex and questionable worth outside getting around regulations.

2. Geico and his other insurance holdings seem designed to get around having to deal with a traditional insurance agent. Reinsurance is much more a pure insurance play without having to mess with "salesmen" Life insurance profits are driven largely by controlling the agents. (They do not call it agency risks for nothing). A traditional life insurance company on a life sale set up a asset that amortizes called "DAC" deferred acquisition cost, is basically a offset to the 1st year commission and expense. Commissions makes life business tricky to pin down when profits are actually made. But reinsurance is much more about controlling the risk of large numbers.

3. Berkshire is known for touting his "life settlement insurance" or buying the opposite side. This is a natural hedge, with a negative correlation to life risk. A traditional life company must account for these reserves as individual products and add the totals. If it is set up correctly a re-insurer can set up some offset to the individual products reserves for the negative correlation.

Gary Rogan responds:

An extremely informative post! The first paragraph is interesting in itself: capitalizing on the misfortune of others withing a moral framework is a perfectly moral, "good capitalist" thing to do. We should all hope that many people will decide to capitalize on the misfortune of those who need to sell their home because they can't pay in order for the real estate market to recover and for the country to prosper, and in fact for many others to become capable of paying their mortgage through re-financing. Creating misfortune through legislation is the worst of what passes for "capitalism" today and what's used by the demagogs to assault the moral underpinnings of capitalism.
 


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