Buffett Says Insurers Took 'Ungodly Amount of Risk' (Update1)

By Erik Holm and Andrew Frye
Bloomberg News
May 3, 2009


May 3 (Bloomberg) -- Berkshire Hathaway Inc. Chairman Warren Buffett said that life insurers, a group led by MetLife Inc. and Prudential Financial Inc. in the U.S., "took on an ungodly amount of risk."

The industry's retirement products guaranteeing minimum returns on equity-based investments were "crazy," Buffett said today at a press conference in Omaha, Nebraska. Berkshire gets about half its profit from insurance, mostly from property and casualty coverage.

When insurers "tell the policyholder that he gets some of the up side and you take all the down side, that's poison," Buffett said. "That would be like a stockbroker telling you that he'll pay you back if your stocks lose money."

The Standard & Poor's Supercomposite Life & Health Insurance Index plunged 60 percent in the past year on costs to back retirement products known as variable annuities and the declining value of assets. North American insurers posted more than $190 billion of writedowns and unrealized losses since the beginning of 2007 tied to the collapse of the mortgage market.

"If you are inclined to be dumb on the asset side, you are inclined to be dumb on the liability side too," Buffett said.

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