Gen Re

And if you read the letters, he talks about you want these capital-like compounders is where you get to high return on equity, protected high return on equity, and a fair price, he would say.

And then he does gen re, which looked expensive optically from the outside.

He used stock, which he'd been counseling against for years.

And then he said that there were going to be synergies, which he'd previously said the year before, in the years before, well, like justifications that management teams used to do any acquisition that they want to, because these synergies will emerge.

One is the trading activity, which is interesting.

And secondly though – is that this secret portfolio is actually an asset management firm called New England Asset Management, which was a subsidiary kind of way down the list of a company bought in 1998 called General Re for about $22 billion in an all-stock sale.

But this New England asset management firm had their own little portfolio that was acquired as part of the buyout of the parent company, which Berkshire and Buffett didn't directly manage.

But it's an asset on their budget sheet and I would be willing to bet they've got their thumb on the scale on virtually any decision that gets made there.

The only bright spot in this picture is that virtually all of the under-reserving revealed in 1984 occurred in the reinsurance area and there in very large part in a few contracts that were discontinued several years ago.

This explanation, however, recalls all too well a story told me many years ago by the then 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.

So at that point in time, some things happen.

There's General Re and AIG starts taking excess risk.

Then we have 2008.

After 2008, we have Dodd-Frank.