- One "overarching issue has emerged over the last 90 days, and that is Gen Re's costs problem," says Ajit Jain in an internal memo seen by Bloomberg.
- Jain took on oversight of Berkshire Hathaway's (BRK.A, BRK.B) Gen Re earlier this year. "The ratio of expenses to premiums is not where it should or could be," he continues.
- While Berkshire's reinsurance operation generates billions in profits, and plenty of float for Warren Buffett to invest, the Gen Re experience has been more rocky since being purchased in 1998 for $22B.
- Underwriting losses began soon after, and float has been falling for more than a decade. This year, premium revenue of $2.78B in H1 was down 7% from 2015's level. Pretax underwriting gain of $132M in 2015 was down more than 50% from the year prior.
- Among the items noted by Jain is pay, where employees have an incentive to shun some potentially profitable business because compensation is tied to margins, rather than overall earnings. He also takes note of the "gradual creep of corporate bureaucracy," and suggests reducing management layers to three or four from the current six, overhauling the budget process, and cutting travel and entertainment expense. “I happen to think that my distaste for complexity and bureaucracy is appropriate and ordinary, although others have called it rabid and overzealous."