The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [557]
38. GEICO had $500 million in premiums and would have needed capital of $125 million to meet regulatory and rating agency standards for leverage.
39. Interview with Sam Butler.
40. Interview with Jack Byrne. “The bastards at Travelers had passed me over for president for Ed Budd,” recalls Byrne (who likes to tell this story and tells it often). “A million dollars invested with me is now worth a billion, and a million dollars invested with Ed Budd is now worth $750,000. And I used to be pissed, but obviously I’m more mature about it now. Well, I’m still pissed.” This story is also recounted in William K. Klingaman, GEICO, The First Forty Years. Washington, D.C.: GEICO Corporation, 1994.
41. Interview with Jack Byrne.
42. “GEICO’s Plans to Stay in the Black,” BusinessWeek, June 20, 1977. It is Byrne’s impression that Wallach did not like him.
43. GEICO had too little capital under regulatory standards to ensure its ability to pay claims on all its policies. By transferring some of its business to competitors, the company would relieve the strain on capital.
44. Interview with Rhoda and Bernie Sarnat.
45. Interview with Lou Simpson.
46. “Leo Goodwin Jr. Is Dead at 63; Headed GEICO Insurance Concern,” New York Times, January 18, 1978; “Leo Goodwin, Financier, Son of Founder of GEICO,” Washington Post, January 18, 1978.
47. Interview with Don Graham.
48. Leonard Curry, “Policy Renewed.”
49. Warren Buffett memo to Carol Loomis, July 6, 1988.
50. Blue Chip bought 14% of Pinkerton’s in March 1976 and Buffett went on the board, a thrill to the erstwhile boy detective who had also busted open Boys Town’s hidden war chest.
51. Interview with Bill Scott.
52. Wallach had invited big insurers to buy up 40% of GEICO’s reinsurance treaties, giving them until June 22 to make their decision to participate. Not enough insurers signed up. Wallach was supposed to decide by Friday, June 25, whether to shut GEICO down. He extended the deadline and, in mid-July, revised his rescue plan—requiring only 25% of GEICO’s premiums to be taken up by the insurance pool and lowering the amount of capital they needed to raise by year-end to $50 million. Reginald Stuart, “Bankruptcy Threat Fails to Change Status of GEICO,” New York Times, June 26, 1976; Reginald Stuart, “The GEICO Case Has Landed in His Lap,” New York Times, July 4, 1976; Matthew L. Wald, “GEICO Plan Is Revised by Wallach,” New York Times, July 16, 1976.
53. National Indemnity was a specialty company, not yet so large or well-known that it would cause too much push-back on the grounds of helping a competitor. Buffett’s other insurers, as will be seen, were struggling.
54. Who knows what General McDermott actually wrote, but any endorsement at all from him would have carried weight among insurers.
55. Some of the people instrumental in making it happen were former GEICO employees, according to Byrne.
56. Interview with Jack Byrne.
57. John Gutfreund quoting Frinquelli in an interview. Frinquelli did not return calls requesting an interview.
58. Interview with Sam Butler.
59. Leonard Curry, “Policy Renewed.” According to some sources, Butler also had an instrumental role in convincing Gutfreund to underwrite the deal.
60. Without a doubt it had not. Among other things, GEICO had failed to disclose a change in method of calculating loss reserves, which had enabled it to boost profits by $25 million during the second and third quarters of 1975. “In the Matter of GEICO et. al.,” October 27, 1976.
61. Leonard Curry, “Policy Renewed.”
62. Interview with John Gutfreund.
63. An indication of “aftermarket support” was a principal component in underwriters’ assessments of how a stock might trade once it was listed. The presence of aftermarket support helped prevent a “busted deal” in which the underwriter had to buy back the offering with the firm’s own capital.
64. Byrne’s recollection is that Tom Harnett, the New York superintendent, helped rally the industry to get behind the reinsurance. Harnett, he believes, had an incentive because the New York guaranty fund was