What does the last sentence mean? Buffett proudly announced that in a matter of months, BHA (Berkshire Hathaway Assurance) already has collected premium volume of $400 million, which may be more than all other municipal bond insurers—combined! It’s done 278 transactions, mostly secondaries, with just 30 people in the office. The Berkshire-insured bonds are trading at a premium to those of any other bond insurer. Buffett said that the premiums represent coverage that only pays if the primary insurer cannot pay. And Berkshire is getting better than 2% when the original insurance cost 1%.
Nov 12, 2018 12:28 AM
Answers · 2
Interesting question as usual, Seven. This one would require a bit more context for me to be 100% sure of the meaning, but I believe I understand. Berkshire Hathaway Assurance insures municipal bonds. It sounds like the original bond premium would have been 1% of the value of the bond, while Berkshire, which insures bond payment in case the primary issuer of the bond defaults, has a premium which amounts to 2% of the bond value. I assume that this extra amount is due to the secondary nature of the insurance as well as Berkshire's rock-solid reputation (it's hard to even imagine their defaulting!). I can't be 100% sure for a few reasons. Bond premium and insurance premium can mean different things, and the secondary nature of the arrangement makes it a bit difficult for me to parse out just what exactly's being said. The important thing is the Berkshire, by getting a 2% premium on an asset that sells on the market for 1%, is getting a pretty sweet value, as is typical for anything which has been touched by the Oracle of Omaha.
November 12, 2018
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