One of many classes from the 2025 Berkshire Hathaway Annual Assembly was that you just by no means know the place your subsequent funding thought will come from, so you must “turn every page”. For instance, I wish to learn your complete transcript of the Q&A session (because of Regular Compounding) as a substitute of simply studying the WSJ or CNBC articles. Take this query and reply got here up from Ajit Jain, their head of insurance coverage:

Becky Fast: This query is from Peter Shen in New Jersey. It’s for Mr. Buffett and Mr. Jain. In recent times, giant non-public fairness companies like Blackstone, Apollo, and KKR have aggressively expanded into insurance coverage, elevating everlasting capital, managing float, and aiming to duplicate the mannequin that Berkshire pioneered many years in the past. Provided that these companies at the moment are immediately competing for insurance coverage belongings, typically utilizing greater leverage and extra aggressive funding methods, how do you view their influence on Berkshire’s insurance coverage operations and underwriting self-discipline? Do you imagine that the non-public fairness mannequin poses dangers to policyholders within the broad monetary system, and has this competitors made it more difficult for Berkshire to seek out and worth insurance coverage alternatives safely and profitably in the present day?

Ajit Jain: A part of the query may be very straightforward. There’s no query the non-public fairness companies have come into the area, and we’re not aggressive within the area. We used to do a good quantity on this area, however within the final 3-4 years, I don’t assume we’ve executed a single deal.

You must separate this complete section into two components: the property casualty finish of the enterprise and the life finish of the enterprise. The non-public fairness companies you talked about are all very energetic within the life finish of the enterprise, not the property casualty finish.

You’re proper in figuring out the dangers these non-public fairness companies are taking up each when it comes to leverage and credit score danger. Whereas the economic system is doing nice and credit score spreads are low, these companies have taken the belongings from very conservative investments to ones the place they get much more return. So long as the economic system is nice and credit score spreads are low, they’ll earn a living – they’ll make some huge cash due to leverage.

Nonetheless, there’s all the time the hazard that in some unspecified time in the future the regulators would possibly get cranky and say they’re taking an excessive amount of danger on behalf of their policyholders, and that would finish in tears. We don’t just like the risk-reward that these conditions supply, and subsequently we put up the white flag and mentioned we will’t compete on this section proper now.

Principally, Berkshire can’t compete in life insurance coverage proper now as a result of non-public fairness companies are flush with cash and are increasing into insurance coverage and competing very aggressively on charges. The one actual insurance-as-investment product that pursuits me (I do have time period life insurance coverage) are multi-year assured annuity (MYGAs), so I made a decision to examine the present charges.

Certain sufficient, a brand new title known as Knighthead Life is on the high of the charts at Blueprint Earnings. Their charges will differ by state and funding quantity, however I noticed 7-year MYGAs at 6.80% and 5-year MYGAs at 6.55%. Knighthead Life even has a comparatively stable A- score for monetary power from AM Finest. Normally, the highest fee might be supplied by an insurer with a decrease B++ score.

Digging additional, we discover that personal fairness agency Knighthead Capital Administration/Knighthead Insurance coverage Group lately accomplished a $550 million capital elevate, acquired Advantage Life Insurance coverage in January 2025, and rapidly rebranded it as Knighthead Life.

I’m nonetheless making an attempt to maintain my investments easy, however these MYGA charges are a fairly important 2%+ unfold above present financial institution CD charges and Treasuries. They don’t seem to be immediately comparable, however they’re comparable. MYGA are way more difficult and there are pitfalls to keep away from. Please do your individual analysis earlier than investing.

As well as, maybe this additionally makes it a great time to buy time period life insurance coverage charges. I haven’t shopped round shortly. We obtained ours arrange at an inexpensive price earlier than having youngsters and I’m all the time pleased to know that it’s there for my household in the event that they want it.

I’m wondering if wanting again, this can have been a possibility to reap the benefits of the consumer-friendly charges ensuing from the present rush of cash into non-public fairness, or if the dangers of “higher leverage and more aggressive investment strategies” will ultimately create a disaster occasion if a few of these insurance coverage firms begin to fail. (How lengthy will that shiny A- score final?)