1998 Letter to Shareholders

To the Shareholders of Berkshire Hathaway Inc.

In 1998, Berkshire made its largest acquisition ever: General Re Corporation for $22 billion. General Re is the world's largest reinsurer, with operations in 53 countries. It is a wonderful business that fits Berkshire perfectly.

"In the long run, the market rewards those who focus on business fundamentals and ignore everything else. This is simple to say and very difficult to execute."

Why We Bought General Re

Reinsurance is a business built on trust. Insurance companies buy reinsurance to protect themselves against catastrophic losses. They need to know that when they file a claim, the reinsurer will pay—promptly and completely.

General Re has earned this trust over 80 years. Its financial strength is unmatched, its expertise is unparalleled, and its relationships span the globe. These qualities make General Re's float extraordinarily valuable.

When we acquired General Re, we added approximately $15 billion in float to our existing $19 billion. Berkshire now operates the largest reinsurance operation in the world, with float that will compound for generations.

The Nature of Insurance Float

Insurance float is money we hold that belongs to others. We invest it; we keep the returns. The cost of this capital is whatever we pay in losses and expenses that exceed the premiums we collect.

In most years, our insurance operations collect premiums that exceed their losses and expenses. In these years, we are actually paid to hold float. This is a remarkable competitive advantage that we have maintained for decades.

Ajit Jain

In 1998, I want to single out Ajit Jain for special recognition. Ajit runs our reinsurance operations from a single office in Stamford, Connecticut, handling business that most large insurance companies could not even understand, let alone underwrite.

Ajit's ability to evaluate and price complex risks is unique in the industry. His operations generate returns that would be impossible for less-capable or less-capitalized competitors.

General Re's Culture

Ron Ferguson has run General Re with extraordinary skill. Under his leadership, General Re has maintained its reputation for integrity and financial strength while growing its business profitably.

When we acquired General Re, Charlie and I made a commitment: General Re would operate exactly as it had before, with the same management, the same culture, and the same standards. That commitment will be honored.

Looking Forward

Our insurance strategy is simple: write business only at prices that properly compensate for risk, maintain enormous financial strength, and let the float compound over time.

1. We will never sacrifice financial strength — Our A.M. Best rating (AAA) is our most valuable asset
2. We will price accurately — Underwriting discipline is non-negotiable
3. We will look for opportunities — Crises create the best insurance opportunities
4. We will think long-term — Insurance float compounds best over decades

Warren E. Buffett February 1999