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Berkshire Move Alters Succession Debate

Berkshire's reinsurance consolidation tilts the CEO race more toward Abel than Jain.

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While we were surprised to see wide-moat  Berkshire Hathaway (BRK.A)/(BRK.B) move to consolidate the reporting structure for its two reinsurance arms, General Re and Berkshire Hathaway Reinsurance Group, having run them separately for much of the past two decades, it does make sense on a few levels. With reinsurance expected to continue facing a difficult pricing environment, it makes sense to consolidate Berkshire's efforts under one leader--especially if that leader is Ajit Jain. The retirement of General Re CEO Tad Montross at the end of this year has opened the door for Berkshire to do just that, with Jain expected to take responsibility for all of Berkshire's reinsurance efforts once Montross steps down.

While we've long noted that General Re and BHRG have the luxury of walking away from business when pricing is bad (without making cuts to their operations), we've also noted that there are limits to how long that might be the case. With the company seeing reinsurance as probably unattractive for another decade, it makes sense to have Jain oversee Berkshire's entire operation, especially if there are duplicate efforts that can be streamlined. That's not to say that we expect to see major cuts in these operations, but with Jain overseeing both General Re and BHRG, the firm should be able to continue focusing on profitability over growth, which is what an insurer should be doing in a poor pricing environment.

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Greggory Warren does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.