New York: Ajit Jain, named by investors as a possible successor to investment guru Warren Buffett, said the biggest opportunities for Berkshire Hathaway Inc.’s insurance business occur when major catastrophes strike.
“It’s the politically incorrect answer, but a ‘major cat’ will certainly separate the men from the boys,” said Jain, speaking on Monday (7 May 2007) evening at the New York University. The 55-year-old is the president of a Berkshire Hathaway division that provides reinsurance, or insurance for insurance firms.
The Stamford, Connecticut-based Jain, who specializes in catastrophe coverage at Berkshire, said he prefers a so-called “major cat” to record industry profit. He insured a sweepstakes by PepsiCo Inc. in which a contestant had a chance to win $1 billion (Rs4,100 crore); Chicago’s Sears Tower, North America’s tallest building; and the 2002 Winter Olympics in Salt Lake City after the terrorist attacks on 11 September 2001.
Guiding hand: Warren Buffett looks over the shoulder of Ajit Jain, head of the reinsurance unit with Berkshire Hathaway Inc., while he plays bridge.
Berkshire gets about half its earnings from insurance and capitalized in 2006 on a retreat by rivals wary of covering the US Gulf Coast after the record storm season the prior year. (The number of storms recorded in 2005 was the highest since meteorological observations began to be recorded.) Net income at Berkshire increased 29% to $11 billion in 2006.
Buffett, 76, has identified three “outstanding” candidates to take over as chief executive officer, he wrote in his 2006 letter to shareholders. Berkshire investors including Gardner Russo & Gardner’s Tom Russo have said Jain, born in India and a Berkshire employee since 1986, is in the running. Jain said he speaks with Buffett daily, discussing potential deals. Buffett taught him to “do things that are rational,” such as selling insurance only when the premium is sufficient compensation for the risk, Jain said. For example, “after 9/11, people got irrational about the risk of terrorism,” allowing Berkshire to increase prices, he said.
Jain, speaking to a group that included the New York University students and graduates, addressed compensation in the finance industry. “These days, the money is so out of whack on Wall Street that I don’t know how you can turn down what they’re offering.”