Investment Advisory Service

Wednesday, 5 October 2016

How Buffett and Ajit Jain together saved Lloyd’s, Pink Floyd and the Queen?

This one statement by Buffett says it all when it comes to brilliance of Ajit Jain- Head of Berkshire Reinsurance. Curious to know more about insurance, reinsurance and Ajit Jain, I studied one of the largest reinsurance deals that Buffett and Jain did : Reinsurance of Lloyd's Equitas.

How Lloyd's came to the point of imploding and taking down with it the Queen and Pink Floyd ? How did Buffett and Jain together saved everybody ? (and made money at the same time)

You can download the note here.


Vishnu said...

Lesson on Reinsurance (my heading. Not WB  )

We hope to become much more active—in reinsurance transactions where the buyer’s overriding concern should be the seller’s long-term creditworthiness.

Two kind of Reinsurance Structure (my heading. Not WB  )

Structured settlements—a procedure for settling losses under which claimants receive periodic payments (almost always monthly, for life) rather than a single lump sum settlement. This form of settlement has important tax advantages for the claimant and also prevents his squandering a large lump-sum payment. Frequently, some inflation protection is built into the settlement. Usually the claimant has been seriously injured, and thus the periodic payments must be unquestionably secure for decades to come. We believe we offer unparalleled security. No other insurer we know of—even those with much larger gross assets—has our financial strength.

Transfer loss reserves. In such transactions, other insurance companies pay us lump sums to assume all (or a specified portion of) future loss payments applicable to large blocks of expired business. Here also, the company transferring such claims needs to be certain of the transferee’s financial strength for many years to come. Again, most of our competitors soliciting such business appear to us to have a financial condition that is materially inferior to ours. Potentially, structured settlements and the assumption of loss reserves could become very significant to us. Because of their potential size and because these operations generate large amounts of investment income compared to premium volume, we will show underwriting results from those businesses on a separate line in our insurance segment data. We also will exclude their effect in reporting our combined ratio to you. We “front end” no profit on structured settlement or loss reserve transactions, and all attributable overhead is expensed currently.

Ankur Jain said...

Thanks Vishnu for pulling out and sharing the relevant piece on Reinsurance.

What I am specifically looking out for is : thoughts of Buffett and Ajit Jain crystallised into mathematics for some specific reinsurance deal. I know it would be difficult but if wishes were horses ....:-)