There’s an old saying that simply states, “You don’t get rich without making a few enemies along the way.”
We recently learned in a report from the Wall Street Journal that Warren Buffett, typically quite loved by all, has been pissing people off as of late. The specific reason is that Berkshire Hathaway recently poached four of the top American International Group’s executives this past April.
As expected, AIG made it a point to speak up and highlight the company’s remaining self-described “seasoned and very deep bench,” but as previously noted at that time, there’s no question they would rather not have to replace the company’s best executives to begin with.
Buffett Wasn’t Finished Though
Next, in June, whether it was an intentional move or not, Buffett jabbed at AIG again by making a statement in an official Berkshire Hathaway press release: “It’s official: we are moving into commercial insurance in a substantial way, and we are here to stay.”
After that he went on to mention all of the strengths of the newly formed Berkshire Hathaway Specialty Insurance company segment, where he included its “proven underwriting discipline and financial strength, along with a stellar management team” and on this list of management are five former AIG employees.
Even worse for AIG, according to the Wall Street report, is that Berkshire’s newest business venture has already expanded to a total of 62 employees, and 15 of the newest hires are also from AIG.
Matt Koppenheffer from Fool.com, who also authored a special report about Warren Buffett states: “For skeptics of the quality of AIG’s core insurance business, I think this goes a long way to show just how good it is. But I also know this: Berkshire is not poaching the underperformers at AIG.”
And that’s ultimately when AIG finally realized that they had enough, and began threatening to sue Berkshire Hathaway earlier in the summer. Until the two companies came to a truce and Berkshire Hathaway agreed that they would no longer hire any more AIG employees for one year.
On a side note, now that the companies are newly direct rivals, it’s also important to note that AIG is no longer going to give Berkshire any of its reinsurance business moving forward.
Here’s the Total Stakes
If you are beginning to wonder why AIG has reached their point of frustration, think back to June when AIG had controlled a strong 20% of the $25 billion of the US excess and surplus market. At that time, Berkshire Hathaway only held around 1.6%.
There have not been any particularly specific updates from Warren Buffett regarding the specialty insurance business of Berkshire Hathaway, and we do not know how far they have progressed, but David Bidmead, Marsh & McLennan’s US insurance operations CEO, mentions that Berkshire has been “successful in acquiring a good amount of business” as of late, which tells us that AIG is not the only company that’s worried about Berkshire Hathaway and Buffett’s expanding reach.
Let’s not forget, this is not Warren Buffett’s first time building market share for one of Berkshire Hathaway’s insurance businesses from the bottom up. Buffett even reminded us in his 2012 shareholder letter that it took almost 18 years to grow GEICO’s share of the personal auto market from 2.5% up to 9.7%, and during that period the premium volume increased by almost sixfold to $16.7 billion.
All in all, regardless of how the competition feels, there’s no question that Buffett and his team will use the same long-term focus when growing the Berkshire Hathaway Specialty Insurance division.