Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. We're halfway through the 2015 Berkshire Hathaway Annual Meeting. I'm here with Vincent Lui--he's an insurance analyst for Morningstar--to look at some of the insurance-related questions that came up in the first half.
Vincent, thanks for joining me today.
Vincent Lui: Thank you for having me.
Glaser: So, we didn't have a ton of questions, but one of them was about the addition of a new workers' comp line that Berkshire Hathaway has started that sells directly to businesses versus agents. What do you think of their response to this question about why they started this business and what the prospects for it are?
Lui: I think this is a really new way of selling workers' comp. So, Berkshire started using direct response for GEICO, and it's been a really huge success for auto insurer. By using direct sales to GEICO, this is where the GEICO cost advantage really is over industry peers, and this is how we think of GEICO as a low-cost insurer. This workers' comp is really a new way of selling insurance, and I'm not sure if that's the best way to do it, given that workers' comp is a really long-tail product. But we'll see how that goes.
Glaser: So, they're experimenting there. There were other questions about if Berkshire would ever be recognized as a strategically important financial institution like some other insurers have. Do you think there's any prospect that Berkshire could be subject to this extra regulatory burden? What do you think about some of the discussion around that?
Lui: There was some talk about that outside of the financial world; but to be quite honest, I don't think you should look at Berkshire the same way, because Berkshire has all of these subsidiaries going on in the structure, and they have this safety measure in terms of how likely certain financial risk is going to [impact] their system. So, in my opinion, I don't think Berkshire should be considered a SIFI.
Glaser: So, you don't see the regulators stepping in anytime soon?
Lui: I don't think so. There have been talks, but it's highly unlikely, in my opinion.
Glaser: One last insurance question was on the railroads. There was some discussion of Buffett offering insurance for a lot of the other railroads other than BNSF for potential accidents that could occur, but they just thought the prices were too high. Did anything about the pricing surprise you? Did you learn anything about the way they are running that business from that answer?
Lui: The reinsurance business for Berkshire is challenging right now because of the excess capacity in the market. But extending to other railways could be a growth area for them. So, I'm not too surprised that this is being discussed at the meeting.
Glaser: But are you surprised that the pricing is such that they can't actually get these deals signed?
Lui: That is a little surprising. But as I said, Berkshire is very careful at pricing. They won't do any deal that's unprofitable for the company. Paying a lot of attention to pricing is really a core benefit for the company.
Glaser: Well, Vincent, thanks for your thoughts on this first half.
Lui: Thank you.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching. We'll have a follow-up at the end of the meeting.