Buffett seven-year itch to go short of the insurance industry

"We have to diamond-point on the light, not a piece Wandan." Warren Buffett (Warren Buffett) in 2008 in a letter to shareholders said.

Obviously, Buffett does not think that Baishan Insurance Group (White Mountains Insurance Group, Ltd., NYSE: WTM, under Baishan insurance) is a diamond.

U.S. time on March 10, Buffett's Berkshire Hathaway (Berkshire Hathaway Inc., NYSE: BRKA) announced that it would sell the 16.3 percent holding in Baishan insurance stocks.

Baishan insurance registered in Bermuda as a financial services company, whose main business is property insurance, accident insurance and reinsurance.

7-year itch

March 10, according to the Baishan insurance public statement regarding this transaction, the agreement between the two parties, Hathaway will sell all of its 172.4 million shares held by the Baishan insurance ordinary shares, through this transaction, Hathaway will receive 751 million U.S. dollars in cash And the two companies.

Hathaway said, will be wholly-owned holding a Baishan's insurance subsidiaries, thus holding the other two U.S. companies - Business accident insurance company (Commercial Casualty Insurance Company, CCIC) and the International Group of the United States (International American Group, Inc. , IAG). As at the end of 2007, CCIC and IAG total assets of about 435 million U.S. dollars and 028 million U.S. dollars after the adjustment of rights and interests of shareholders.

The transaction is expected to be completed in the third quarter of this year. By then, Baishan insurance issued ordinary shares will be reduced to about 880 million shares, or about 485 U.S. dollars / share.

This means that Buffett will abandon a seven-year Baishan insurance.

"In 2001, Hathaway and Warren Buffett as the key to our investors, so that we get CGU / OneBeacon two companies and our shareholders have benefited from this relationship." Baishan insurance chief Executives Leibalete (Ray Barrette) said in a statement.

Seven years ago, Hathaway Baishan insurance companies to buy 300 million U.S. dollars of convertible shares, with 30 percent of the Baishan insurance shares. Baishan insurance at that time CEO of Jiekebeien (Jack Byrne) contributed to this transaction.

Jiekebeien a close friend Warren Buffett, Buffett describes Bain had the ability to work: "Bain like a chicken farm owner, he always Gundao ostrich egg laying hens of the Housing and Say, 'Hey, ladies, this is your real competitors'. "

Hathaway insurance companies to invest in Baishan, can be 9 percent return, you can also use the price of 175 U.S. dollars converted into ordinary shares. Under the contract, Hathaway's convertible preferred shares in four years may not repurchase. Buffett is a take seven years.

Honeymoon has ended.

February 29, Hathaway announced in 2007 earnings, while still open Buffett's 2008 letter to shareholders.

"2007, our insurance business - the cornerstone of Hathaway - and distinguished, in part because insurance is the best management talent, but 2007 is quite lucky, because it is encountered a series of insurance for the second disaster Years. "

"Carnival has ended." Buffett in the letter of pessimistic predictions.

In the letter released after the 10th day, Hathaway announced that the sale of all of its holdings of insurance stocks in Baishan.

From July 2007, Baishan insurance market continued to decline in New York, 52-week high price of July 1, 2007 of 611.02 U.S. dollars, as at March 10, the stock closed at 452.93 U.S. dollars, the day down 4.98 percent.

Pessimistic about 2008

By the loan-to-impact, Buffett was known as Hathaway "cornerstone" of the insurance industry's future was uncertain.

"I am convinced that the entire insurance industry, including our insurance company profit margins in 2008 will decline substantially." Buffett believes that as the exposed the growing problem, even if the United States the third consecutive year to avoid severe economic crisis, industry profits May be mercilessly squeezed out four percent. If encountered more stormy weather, the earthquake disaster, the situation may be worse.

"I have decided to give up 800 billion U.S. dollars of assets involved in the rescue plan." U.S. time on March 3, Buffett told CNBC television that said that the U.S. economy "by any standard" do have a recession.

Buffett said that despite the current economic situation in 1973,1974 and around the large-scale economic recession that is not exactly the same, but investors should not completely rule out the possibility this was a very serious economic recession.

February 12, Buffett told the three largest U.S. bond insurer proposed to be for a total 800 billion U.S. dollars of municipal bonds to provide reinsurance services after a month, Buffett attitude toward, is considered revaluation Market risk results.

Currently, Hathaway has the nation's largest auto insurance companies may cover insurance (GEICO), and the world's leading reinsurers General Re and Hathaway Reinsurance Group.

The report shows that, as of December 31, 2007, Buffett held by stock market value of about 74.999 billion U.S. dollars, while the market value of the insurance Baishan 886 million U.S. dollars, accounting for only 1.18