Warren Buffett Building A Cosy Insurance Oligopoly

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Rather than invest in expanding some of his highly successful insurance businesses, Warren Buffett is instead investing substantial sums of capital in his businesses’ competitors.

Thus he can deploy more capital into the successful insurance space, yet avoid the added competition he would cause if he aggressively expanded his current business against its competitors.

Business Week:

Buffett has more than $4.5 billion invested in Munich Re and Swiss Reinsurance Co., choosing to put Berkshire’s cash in two companies that account for more than a third of the global market instead of using the money to compete against them. Had Buffett, as Berkshire’s chairman and chief executive officer, directed a part of that capital to his own underwriters, he could have pushed down the price of coverage, analysts said.

“This is a move to increase that exposure without disrupting the pricing,” said Craig Fehr of Edward Jones & Co.

It’s perfectly legal of course and is the kind of thinking that makes this man earn his returns.

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