Ron Ferguson

Even though a reinsurer may have a tightly focused and rational compensation system, it cannot count on every year coming up roses. Reinsurance is a highly volatile business, and neither General Re nor Ajit’s operation is immune to bad pricing behavior in the industry. But General Re has the distribution , the underwriting skills, the culture, and — with Berkshire’s backing — the financial clout to become the world’s most profitable reinsurance company. Getting there will take time, energy and discipline, but we have no doubt that Ron Ferguson and his crew can make it happen.

WARREN BUFFETT: I’d like to make one comment before we proceed to the election of directors. And that’s that in the General Re proxy material, material relating to the General Re merger, it was stated that the intention was to have Ron Ferguson, the CEO of General Re, join the board of Berkshire Hathaway. And that offer was extended, and still remains open, and will remain open for his lifetime and mine, at least, for Ron to join the board. After thinking about it, he decided that he preferred not to be on the board. And in that judgment, he concurs with my feelings, generally, about boards, in that they can restrict your — it can restrict your activities in purchase and sale of a stock. For example, if you do it in a six-month period, then you’re automatically in trouble with the — and you have to return any profit, as calculated in a rather peculiar way, to the company. It means that your compensation system is laid out for the world to see. There may be some tax restrictions, in terms of the deductibility of salary paid.

•     Early last year, Ron Ferguson of General Re put me in contact with Bob Berry, whose family had owned U.S. Liability for 49 years. This insurer, along with two sister companies, is a medium-sized, highly-respected writer of unusual risks — “excess and surplus lines” in insurance jargon. After Bob and I got in touch, we agreed by phone on a half-stock, half-cash deal. At General Re, the news has turned considerably better: Ron Ferguson, along with Joe Brandon, Tad Montross, and a talented supporting cast took many actions during 2000 to bring that company’s profitability back to past standards. Though our pricing is not fully corrected, we have significantly repriced business that was severely unprofitable or dropped it altogether. If there’s no mega-catastrophe in 2001, General Re’s float cost should fall materially.