Carta a los accionistas de Berkshire Hathaway - 1971
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A los Accionistas de
Berkshire Hathaway Inc.:
Es un placer informar que las ganancias operativas en 1971, excluidas las ganancias de capital, ascendieron a más del 14% del capital social inicial. Este resultado, considerablemente superior al promedio de la industria estadounidense, se logró a pesar de las ganancias insuficientes en nuestra operación textil, lo que deja en claro los beneficios de la redistribución del capital inaugurada hace cinco años. Seguirá siendo el objetivo de la gestión mejorar el rendimiento de la capitalización total (deuda a largo plazo más capital), así como el rendimiento del capital social. Sin embargo, hay que tener en cuenta que el simple hecho de mantener la actual tasa de rendimiento relativamente alta puede resultar más difícil que mejorar los muy bajos niveles de rendimiento que prevalecieron durante la mayor parte del decenio de 1960.
Operaciones Textiles
Nosotros, al igual que la mayor parte de la industria textil, seguimos luchando durante todo 1971 con márgenes brutos inadecuados. Los grandes esfuerzos para reducir los costos y la búsqueda continua de tejidos menos sensibles a los precios produjeron sólo ganancias marginales. Sin embargo, sin estos esfuerzos habríamos operado sustancialmente en números rojos. El empleo fue más estable durante todo el año ya que nuestro programa para mejorar el control de inventarios logró un éxito razonable.
Como se mencionó el año pasado, Ken Chace y su grupo directivo han estado nadando contra una fuerte corriente de la industria. Este entorno negativo sólo les ha hecho intensificar sus esfuerzos. Actualmente estamos asistiendo a una leve recuperación de la industria que pretendemos maximizar con nuestra fuerza de ventas enormemente fortalecida. Con la mejora que ahora se observa en el volumen y la combinación de negocios, esperaríamos una mejor rentabilidad (aunque no de naturaleza dramática) de nuestra operación textil en 1972.
Operaciones de Seguros
Una combinación inusual de factores (menor frecuencia de accidentes automovilísticos, tasas efectivas marcadamente más altas en líneas de gran volumen y ausencia de catástrofes importantes) produjo un año extraordinariamente bueno para la industria de seguros de propiedad y accidentes. Compartimos estos beneficios, aunque no están exentos de connotaciones negativas.
Nuestro negocio tradicional, y aún nuestro segmento más grande, es el de pólizas especializadas o asegurados no estándar. Cuando los mercados estándar se vuelven ajustados debido a la suscripción no rentable de la industria, experimentamos aumentos sustanciales en el volumen a medida que los productores recurren a nosotros. Esta era la condición hace varios años, y explica en gran medida el aumento del volumen directo experimentado en 1970 y 1971. Ahora que la suscripción se ha vuelto muy rentable en toda la industria, más compañías están buscando a los asegurados que estaban rechazando hace poco tiempo y las tarifas se están recortando en algunas áreas. Seguimos teniendo como objetivo principal la rentabilidad de la suscripción y esto bien puede significar una disminución sustancial en el volumen directo de National Indemnity durante 1972. Jack Ringwalt y Phil Liesche continúan guiando esta operación de una manera igualada por muy pocos en el negocio.Our reinsurance business, which has been developed to a substantial operation in just two years by the outstanding efforts of George Young, faces much the same situation. We entered the reinsurance business late in 1969 at a time when rates had risen substantially and capacity was tight. The reinsurance industry was exceptionally profitable in 1971, and we are now seeing rate-cutting as well as the formation of well-capitalized aggressive new competitors. These lower rates are frequently accompanied by greater exposure. Against this background we expect to see our business curtailed somewhat in 1972. We set no volume goals in our insurance business generally—and certainly not in reinsurance—as virtually any volume can be achieved if profitability standards are ignored. When catastrophes occur and underwriting experience sours, we plan to have the resources available to handle the increasing volume which we will then expect to be available at proper prices.
We inaugurated our “home-state” insurance operation in 1970 by the formation of Corn-husker Casualty Company. To date, this has worked well from both a marketing and an underwriting standpoint. We have therefore further developed this approach by the formation of Lakeland Fire & Casualty Company in Minnesota during 1971, and Texas United Insurance in 1972. Each of these companies will devote its entire efforts to a single state seeking to bring the agents and insureds of its area a combination of large company capability and small company accessibility and sensitivity. John Ringwalt has been in overall charge of this operation since inception. Combining hard work with imagination and intelligence, he has transformed an idea into a well organized business. The “home-state” companies are still very small, accounting for a little over $1.5 million in premium volume during 1971. It looks as though this volume will more than double in 1972 and we will develop a more creditable base upon which to evaluate underwriting performance.
A highlight of 1971 was the acquisition of Home & Automobile Insurance Company, located in Chicago. This company was built by Victor Raab from a small initial investment into a major auto insurer in Cook County, writing about $7.5 million in premium volume during 1971. Vic is cut from the same cloth as Jack Ringwalt and Gene Abegg, with a talent for operating profitably accompanied by enthusiasm for his business. These three men have built their companies from scratch and, after selling their ownership position for cash, retain every bit of the proprietary interest and pride that they have always had.
While Vic has multiplied the original equity of Home & Auto many times since its founding, his ideas and talents have always been circumscribed by his capital base. We have added capital funds to the company, which will enable it to establish branch operations extending its highly-concentrated and on-the-spot marketing and claims approach to other densely populated areas. All in all, it is questionable whether volume added by Home & Auto, plus the “home-state” business in 1972, will offset possible declines in direct and reinsurance business of National Indemnity Company. However, our large volume gains in 1970 and 1971 brought in additional funds for investment at a time of high interest rates, which will be of continuing benefit in future years. Thus, despite the unimpressive prospects regarding premium volume, the outlook for investment income and overall earnings from insurance in 1972 is reasonably good.
Banking Operations
Our banking subsidiary, The Illinois National Bank & Trust Company, continued to lead its industry as measured by earnings as a percentage of deposits. In 1971, Illinois National earned well over 2% after tax on average deposits while (1) not using borrowed funds except for very occasional reserve balancing transactions; (2) maintaining a liquidity position far above average; (3) recording loan losses far below average; and (4) utilizing a mix of over 50% time deposits with all consumer savings accounts receiving maximum permitted interest rates throughout the year. This reflects a superb management job by Gene Abegg and Bob Kline.
Interest rates received on loans and investments were down substantially throughout the banking industry during 1971. In the last few years, Illinois National’s mix of deposits has moved considerably more than the industry average away from demand money to much more expensive time money. For example, interest paid on deposits has gone from under $1.7 million in 1969 to over $2.7 million in 1971. Nevertheless, the unusual profitability of the Bank has been maintained. Marketing efforts were intensified during the year, with excellent results.
With interest rates even lower now than in 1971, the banking industry is going to have trouble achieving gains in earnings during 1972. Our deposit gains at Illinois National continue to come in the time money area, which produces only very marginal incremental income at present. It will take very close cost control to enable Illinois National to maintain its 1971 level of earnings during 1972.
Financial
Because of the volume gains being experienced by our insurance subsidiaries early in 1971, we re-cast Berkshire Hathaway’s bank loan so as to provide those companies with additional capital funds. This financing turned out to be particularly propitious when the opportunity to purchase Home & Auto occurred later in the year.
Our insurance and banking subsidiaries possess a fiduciary relationship with the public. We retain a fundamental belief in operating from a very strongly financed position so as to be in a position to unquestionably fulfill our responsibilities. Thus, we will continue to map our financial future for maximum financial strength in our subsidiaries as well as at the parent company level.
Warren E. Buffett
Chairman of the Board
March 13, 1972
Concepts mentioned
Companies mentioned
- Berkshire Hathaway
- National Indemnity
- Illinois National Bank
- Cornhusker Casualty Company
- Lakeland Fire & Casualty Company
- Texas United Insurance
- Home & Automobile Insurance Company