Warren Buffett names Greg Abel his successor: why it 'makes sense'

Yahoo Finance’s Brian Sozzi, Myles Udland, and Julie Hyman recap the big takeaways from the Berkshire Hathaway Annual shareholders meeting with Brian Meredith, UBS Managing Director.

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MYLES UDLAND: Investors still going through some of what Warren Buffett had to say over the weekend at the Berkshire Hathaway annual shareholders meeting. Joining us now to talk about some of the big takeaways and some news, of course, just out this morning. Brian Meredith is an analyst and managing director over at UBS covering the insurers.

Brian, thanks for jumping on. Let's start with that news on Greg Abel. And Charlie kind of let it slip at some point in the meeting. Warren Buffett comes out today. He says if I'm gone tomorrow, Greg Abel will be the CEO. As you had thought about the roles of Greg and Ajit Jain, co-vice chairmen at Berkshire Hathaway, does that make sense to you that Greg, it sounds like he'll be the sole CEO at some point in the future?

BRIAN MEREDITH: Yeah, I mean, it's not a huge surprise. I mean, if you look at Berkshire Hathaway today, obviously, from a make-up from an earnings perspective, it's a lot more kind of non-insurance kind of businesses, right? So having a leader, somebody who's more involved in those non-insurance businesses and understands them better, you know, makes sense. I also think, you know, Ajit Jain, is one of the best insurance execs we've ever seen, right? He's really good at just kind of the dealmaking and stuff. So I think, you know, it fits perfectly kind of Ajit to just continue with the insurance stuff, continue with the insurance kind of deal-making stuff and let Greg kind of be the CEO.

BRIAN SOZZI: And Brian, under a CEO Greg Abel, is Geico and those other insurance businesses, are they still part of Berkshire Hathaway?

BRIAN MEREDITH: Absolutely. I mean, the insurance business still a core part of Berkshire Hathaway, right? I mean, the float aspect of the insurance business is really kind of the genesis of Berkshire Hathaway, right? So it's a core part of the strategy, a core part of kind of the way they think about the business and being able to fund acquisitions and purchases of equity securities.

MYLES UDLAND: You know, Brian--

BRIAN MEREDITH: And they're great businesses, by the way, too.

MYLES UDLAND: Yeah, and Brian, you know, Warren was asked about it a couple of different ways on Saturday, essentially versions of the question, I invest in Berkshire, you guys have all this cash. You didn't go spend tens of billions, hundreds of billions of dollars at below last year. Kind of, what gives? And obviously, everyone knows-- you know, everyone knows March 2020 was the bottom. At the time, it wasn't so obvious. What did you make of those responses? And I guess, how do you now think about the cash pile at Berkshire? Do you expect them to continue buying back more stock if, indeed, a huge acquisition does not appear imminent?

BRIAN MEREDITH: Yeah, no, remember at the last annual meeting, Buffett did make some comments about how there was a very short window of time that really was available to really get some really inexpensive valuations, whether it was kind of a challenging time until the Fed came in, right? So I clearly don't think he had a lot of time in order to kind of really take advantage of the situation that presented itself back in March. So I think that's number one.

Number two, clearly, a lot of uncertainty with respect to the economy and what's been happening. And number three, I think he did a really good job laying out at this year's annual meeting some of the challenges right now with respect to making acquisitions, right? And even public equities, just valuations being higher. It's just cheaper for him or more attractive for him to buy his own stock. So absolutely, I think he's going to continue to be a buyer of their stock. By our calculation, we come up with an intrinsic value on Berkshire shares. It's, let's call it roughly 13% below, you know, it was as of the close on Friday. So, still an attractive use of his capital and of that $145 billion worth of cash.

BRIAN SOZZI: Is there something when you were watching the event and it ended, was there something you wanted more clarity on that you wanted more questions-- or you have more questions on?

BRIAN MEREDITH: Listen, we always have more questions on Berkshire Hathaway, right? I would have loved to dive in a little bit more into their reinsurance business. Not a lot of growth in the first quarter, a lot of growth last year. Did that indicate something that-- you know, his view with respect to the pricing environment in the reinsurance space? I would have loved to got a little more into detail on Geico and what exactly they're doing at Geico to improve their competitiveness relative to Progressive when it comes to pricing and data and analytics. I know he talked about the telematics offering and them being really behind them. But I would love to have gotten a little bit more on that as well.

MYLES UDLAND: Yeah, and, you know, Brian, that shareholder proposal on the ESG disclosure, and they talked a little bit about why they disagreed with it. But certainly for a company with this kind of insurance operation, questions about the future of what you're insuring, what it might cost, how you think about those risks, they are always going to be there. As someone covering the insurance business, where did Berkshire fit into an industry that is changing? And how far they along or how much further do you think they need to be along and really digesting what would seem to be, again, a very different future for that business?

BRIAN MEREDITH: Well, you know, the insurance business is always changing, right? And it's always changing from the perspective that there's always new risks emerging, right, and new things that you've got to insure or new things you need to understand as far as, you know, what is covered under your contract. And I think Ajit did a good job in laying that out and saying there's always going to be uncertainties out there.

Now, the insurance industry, one of the reasons we're in a what we call hard market right now where you're getting some big price increases in commercial insurance, you know, in the reinsurance market, one of them is because of global warming, right, and the uncertainty with respect to how big large catastrophes will continue to kind of progress here going forward, the frequency of them. So that's something that these P&C insurance companies-- and Berkshire Hathaway is one of the best of them-- will take into account in pricing and terms and conditions and where they want to-- what they want to insure.

I mean, it's not only, you know, weather changes and stuff. There's stuff like cyber risk, right? You know, cyber insurance is seeing a lot of increase in losses over the last 12 to 18 months. That's something that right now is a very hard market. Prices are almost doubling in lots of areas there. And companies are being forced to kind of re-evaluate how they underwrite cyber risk. So lots of those things that are happening.

MYLES UDLAND: Yeah, and I think it was a-- it might have been two years ago, maybe three years ago, where Buffett talked about self-driving cars and how that would impact Geico. And to your point, all that stuff is always changing. All right, Brian Meredith, analyst over at UBS. Brian, I hope we'll see you in Omaha next year. Thanks for jumping on today.

BRIAN MEREDITH: Absolutely. Love to. Thanks.