General Re
Company Overview
General Re (General Reinsurance Corporation) is one of the world's largest reinsurance companies, with operations in more than 150 countries. Berkshire acquired General Re in 1998 in a stock-for-stock deal then valued at approximately $22 billion — Berkshire's largest acquisition at the time. The acquisition added enormous reinsurance capacity and international distribution, but proved significantly more difficult than anticipated due to both underwriting problems and a large inherited derivatives book.
Investment Story
1998: The acquisition rationale. Buffett acquired General Re primarily for its reinsurance float — generating approximately $14 billion of float at the time of acquisition — and its global distribution network. He described it as expected to become Berkshire's strongest global reinsurance operation. The all-stock deal was valued at $22 billion.
1999–2001: The reckoning. General Re had been experiencing underwriting deterioration before the acquisition — losses that Berkshire's due diligence did not fully capture. The 9/11 terrorist attacks in 2001 generated enormous losses across the insurance industry, including $1.7 billion from General Re alone. Berkshire wrote down the acquisition significantly. Buffett was honest in the 2001 letter: "Gen Re's underwriting has been far below the standard I expect of our insurance operations."
2001–2003: Derivatives unwinding. General Re carried a large derivatives book — thousands of contracts representing complex financial obligations — that proved extraordinarily difficult to unwind. The process took years and cost hundreds of millions. This experience directly informed Buffett's 2002 "financial weapons of mass destruction" warning about derivatives.
2003–present: Successful transformation. Under CEO Joe Brandon and subsequently Tad Montross, General Re restored underwriting discipline, shed unprofitable business, and rebuilt profitability. By the mid-2000s, General Re was generating strong underwriting profits and expanding Berkshire's global reinsurance capacity as intended.
Long-term outcome. Despite the rocky start, General Re has generated well over $20 billion in cumulative float since acquisition, vindicating the original thesis. The underwriting problems were correctable; the global distribution network was genuinely valuable.
Buffett's Own Words
Waumbec into a significant profit position. We expect a good level of profits from textiles in 1976. Continued progress is being made in the movement of Waumbec goods into areas of traditional marketing strength of Berkshire Hatha- way, productivity should improve in both the weaving and finishing areas at Manchester, and textile demand continues to firm at decent prices. \n2 We have great confidence in the ability of Ken Chace and his team to maximize our strengths in textiles.
Waumbec into a significant profit position. We expect a good level of profits from textiles in 1976. Continued progress is being made in the movement of Waumbec goods into areas of traditional marketing strength of Berkshire Hathaway, productivity should improve in both the weaving and finishing areas at Manchester, and textile demand continues to firm at decent prices. We have great confidence in the ability of Ken Chace and his team to maximize our strengths in textiles. Therefore,
Chairman of General Reinsurance Company. He said that every year his managers told him that “except for the Florida hurricane” or “except for Midwestern tornadoes”, they would have had a terrific year. Finally he called the group together and suggested that they form a new operation - the Except-For Insurance Company - in which they would henceforth place all of the business that they later wouldn’t want to count. In any business, insurance or otherwise, “except for” should be excised from the lexicon. If yo
The two companies we acquired in 1998, General Re and Executive Jet, are first-class in every way — more about both later — and the performance of our operating businesses last year exceeded my hopes. GEICO, once again, simply shot the lights out. On the minus side, several of the public companies in which we have major investments experienced significant operating shortfalls that neither they nor I anticipated early in the year. Consequently, our equity portfolio did not perform nearly as well as did the S&P 50
The two companies we acquired in 1998, General Re and Executive Jet, are first-class in every way — more about both later — and the performance of our operating businesses last year exceeded my hopes. GEICO, once again, simply shot the lights out. On the minus side, several of the public companies in which we have major investments experienced significant operating shortfalls that neither they nor I anticipated early in the year. Consequently, our equity portfolio did not perform nearly as well as did the S&P 50
Investment Lessons
Two-stage acquisition mistakes are common and costly. The stock-for-stock structure meant Berkshire spent appreciated Berkshire shares to acquire problems that weren't visible in due diligence. The underwriting deterioration was pre-existing; the derivatives book was pre-existing; neither was fully disclosed or detectable before closing. This experience added to Buffett's caution about large stock-for-stock acquisitions.
Culture change is possible but takes years, not months. Rebuilding General Re's underwriting culture required replacing management, exiting unprofitable business lines, and accepting several years of shrinkage before the culture genuinely changed. The patience to persist through this transformation rather than writing off the acquisition was ultimately validated. The lesson: culture change is real but slow; the timeline must be realistic.
Derivatives books create cost and risk that outlast the decision to exit them. The years-long, multi-hundred-million-dollar process of unwinding General Re's book illustrated that derivatives are not liquid instruments that can be exited at will. Once a complex derivatives book exists, it must be actively managed to termination — which creates ongoing operational risk, capital consumption, and management attention that can last years.