By Andrew Bary

As Warren Buffett prepares to retire as CEO of Berkshire Hathaway at the end of the year, the spotlight is turning to a group of companies that use -- or plan to use -- the Oracle of Omaha's strategy of combining insurance and investments. It isn't as easy as it looks.

Buffett's secret to success -- and investor returns -- was combining investments with insurance after he bought a property-and-casualty insurer soon after taking control of Berkshire in 1965. Insurance premiums often don't need to be paid out in claims until well into the future, and Buffett used them, and the profits from the insurance business, to buy stocks like Coca-Cola and Apple, and entire companies like the Burlington Northern Santa Fe railroad. This created a virtuous cycle as profits were retained and used to make more investments. The proof of its success is in the returns: Berkshire Hathaway stock has returned 20% annually over the past 60 years, far outpacing the S&P 500 index's 10% yearly return.

The Buffett approach has never been more popular. It's being used by top alternative asset managers including Apollo Global Management, where insurance is now central to the firm's growth, and KKR, which invokes Berkshire as it invests alongside its investor base in deals. Billionaire investor Bill Ackman recently got approval to turn Howard Hughes Holdings, a real estate company, into what he has called a "mini-Berkshire" with an insurance business. Another billionaire hedge fund manager, Dan Loeb, wants to transform his European-listed investment fund, Third Point Investors, into an insurer focused on the hot annuity market. Others using a similar strategy include Markel Group, whose CEO Tom Gayner, 63, is known as a shrewd investor and has many fans among Berkshire faithful; Fairfax Financial Holdings, whose chairman and founder Prem Watsa, 74, has been called a Canadian Warren Buffett; Loews; and White Mountains Insurance Group.

Successfully mimicking the 94-year-old Buffett, however, is difficult. "If this were easy, the public markets would be awash in Berkshire Hathaways," wrote Piper Sandler analyst Alexander Goldfarb in a recent note about Howard Hughes.

Markel and Fairfax are probably the closest to Berkshire in structure, and each has generated impressive, if not quite Berkshire-like, returns since the mid-1980s, while attracting a dedicated group of investors. Loews, a conglomerate controlled by the Tisch family for 65 years, has a great long-term record, although it has lagged behind Berkshire and the S&P 500 over the past 10 years. White Mountains has a diverse portfolio of insurance and other businesses and trades cheaply around book value.

Greenlight Capital Re is a small offshore reinsurer and farms out its investments to founder and value hedge fund manager David Einhorn, who also is the company's biggest shareholder with a nearly 20% stake. However, Einhorn, another Buffett fan, has struggled to emulate him due to disappointing insurance underwriting and investments results. The stock is below its 2007 initial-public-offering price.

"It's a three-engine strategy," says TD Cowen analyst Andrew Kligerman, commenting on what Berkshire has done right. He ticks off insurance, investments, and wholly owned businesses. "You need to fire on each cylinder to make it work."

Investors, of course, can stick with the real thing. Berkshire has numerous advantages, including a fortress balance sheet and a diversified mix of earnings that should total $45 billion this year. Buffett's successor, Berkshire executive Greg Abel, 63, is a capable manager regularly praised by Buffett.

The six Berkshire-like companies, however, have something going for them that Berkshire doesn't -- their size. Each is much smaller, leaving plenty of room to grow. The biggest, Fairfax, carries a market value of $41 billion. Berkshire itself has a market value of $1.1 trillion, which makes it tough for the stock to materially top the S&P 500. That might get even harder if the stock loses some of its luster without Buffett in charge.

Money already may be starting to move toward the mini-Berkshires. Fairfax is up 6% since the Berkshire annual meeting, while Berkshire stock is down 9%. On a recent conference call with investors, Ackman said, "If only a fraction of [Berkshire] shareholders take an interest in Howard Hughes, we could see a meaningful rerating of the company." The same can be said for the other five companies.

So far, there's little Wall Street coverage of most of these companies, but that didn't stop Barron's from digging into the numbers. Here's the case for each of the six, ranked by market value.

Fairfax Financial Holdings

Fairfax has generated phenomenal long-term returns as the stock has risen at a Berkshire-like compound annual rate of 19.2% since going public in 1985. Founder, chairman, and controlling shareholder Watsa has assembled an impressive group of property-and-casualty insurers with over $30 billion in annual premiums -- a third that of Berkshire -- and made some shrewd and diverse investments in container ships, European banking, and insurance, particularly in India.

Fairfax has a Berkshire connection in David Sokol, who once led Berkshire Hathaway Energy, the company's utility unit. Sokol now heads Poseidon, the world leader in container ships, and Fairfax holds a 43% stake in the private company. Fairfax values the stake at about $2 billion, but it could be worth considerably more.

Fairfax aims to boost book value by 15% annually, an impressive goal that it has achieved over the past six years. Berkshire, by contrast, is probably capable of about 10% yearly growth in book value going forward.

"You can't go back and invest in Berkshire in 1992, but Fairfax looks and smells like Berkshire of 30 years ago," says investor Charlie Frischer, who runs a Seattle family office that holds the stock. Investors have warmed to the Fairfax story in the past year, as the stock, which is mainly traded in Toronto but also has liquid U.S.-listed shares traded over the counter, has gained 50%

The stock still looks attractive, trading around 1.6 times book value and about 11 times projected 2025 earnings. Raymond James analyst Stephen Boland is bullish, writing earlier this year that the "growth and evolution" at the company should allow it to "meet or exceed" the book value target growth of 15% annually. He has an Outperform rating and a price target of about $1,900 a share, compared with a recent $1,685.

Markel Group

Markel has done more than any other company to position itself as a mini-Berkshire. Markel operates property-and-casualty insurance units and has a $12 billion equity portfolio, whose largest holding is Berkshire. It also has what it calls a ventures unit of assorted businesses ranging from makers of luxury handbags to dredging equipment; the unit reported $500 million in pretax operating profits in 2024.

Markel has piggybacked on Berkshire for 34 years by holding a popular Sunday brunch in Omaha, Neb., on the day after Berkshire's annual meeting. CEO Gayner writes a folksy shareholder letter in the Buffett vein, and the company even has a Berkshire-inspired "owner's manual" laying out corporate principles.

Markel has a superb long-term record, as the stock price has risen to $1,950 from $8.33 when it went public in 1986, a 15% compound annual rate of return, against 11.7% for the S&P 500.

The past six years haven't matched that record due to mediocre insurance underwriting results. That has left Markel looking cheap relative to Berkshire in both earnings and book value, or shareholder equity per share, the metrics favored by investors because P&C results can be volatile based on underwriting cycles and industry pricing trends. Markel now trades for 20 times projected 2025 earnings and for 1.5 times book value, a discount to Berkshire at 25 times and 1.6 times.

Markel even has attracted an activist investor, Jana Partners, which wants the company to improve insurance results and consider a sale or spinoff of the ventures business. Markel seems reluctant to part with ventures, but it has responded by putting the head of its well-run European insurance business in charge of the entire insurance group, acknowledging that it needs to improve.

"I am impressed with the improvements Markel has made to its U.S. insurance business," says Eli Samaha, a managing partner at Madison Avenue Partners, which holds the stock. He sees upside from better insurance results, more disclosure about the ventures unit, higher share buybacks, and potential inclusion in the S&P 500.

The company believes that its stock is undervalued, pegging its intrinsic value at about $2,600 a share at year-end 2024, 35% above current levels.

Loews

Loews' strategy as laid out by new CEO Ben Tisch should resonate with Berkshire followers: "Grow the numerator, shrink the denominator." As Tisch explained in his remarks to shareholders earlier this year, that means building the company's intrinsic value -- the numerator -- while reducing the share count -- the denominator -- to achieve what he called his only job as CEO: "Grow intrinsic value per share."

The company is in a good position to deliver on that goal after cutting its share count by a third since 2018. Tisch, 43, has value-investing genes as the third generation of Tisches to run the conglomerate. He follows his father, Jim, and his grandfather Larry Tisch.

Loews has three main assets: Boardwalk Pipelines; Loews Hotels, whose flagship is the Regency, the longtime site of Manhattan power breakfasts; and a 91% stake in P&C insurer CNA Financial.

CNA is solidly profitable, while interstate natural-gas pipeline operator Boardwalk is benefiting from rising demand for gas. Loews Hotels offers a play on the new Epic Universal attraction in Orlando, Fla., as the operator and 50% owner -- partnering with Universal parent Comcast -- of 11 hotels in and around the Universal theme park. There is also a strong balance sheet with nearly $2 billion of net cash and investments at the Loews parent company.

The company highlights what it calls the "Loews discount," with the stock trading below what management views as intrinsic value. Boyar Research has put the company's intrinsic value at $121 a share, compared with a recent share price of $89. The company trades cheaply for about 10 times earnings and continues to buy back stock, repurchasing 2% in the first quarter.

Ben Tisch sees no need to build an empire, writing that if the "best asset-allocation decision continues to be buying back shares for the next 10 years, I'll be thrilled with the same portfolio of assets and a substantially lower share count."

Just don't ask Wall Street for help: With an $18 billion market value, Loews may be the largest company in the S&P 500 with no formal Wall Street coverage. It deserves better.

White Mountains Insurance Group

White Mountains is a diversified Bermuda-domiciled financial company that was founded 40 years ago by noted insurance executive Jack Byrne, who once rescued Geico, now wholly owned by Berkshire. Buffett called Byrne a "Babe Ruth of Insurance."

The company has produced impressive annual returns since the 1985 IPO, rising 77-fold. Its largest unit, Ark, is a diversified London P&C insurer. It also owns Kudu Investment Management, a successful investor in private asset managers, now numbering about two dozen. It owns Bamboo, a provider of homeowners' insurance in California that incurred only small losses from the Los Angeles fires earlier this year, and a quarter of the publicly traded MediaAlpha, a digital platform that connects insurance carriers with potential customers.

White Mountains has a well-regarded management team led by Manning Rountree and a chairman, Weston Hicks, who led insurer Alleghany for two decades before Berkshire Hathaway bought it in 2022.

White Mountains has grown book value at a far-from-shabby 10% rate over the past 10 years and 9% over 20 years. Its goal is to boost the book value at seven percentage points above the 10-year Treasury yield, or about 11%. Despite the company's winning record, the stock, now around $1,787, trades cheaply at just above book value of $1,752 on March 31. The company has been a large buyer of stock, repurchasing nearly half of its shares since Rountree became CEO in 2017 and 75% since 2003.

White Mountains has almost no Street research coverage despite a $4 billion market value. What's it worth? Probably at least a 15% premium to book value, which should grow over time. Trading around book, the risk/reward looks favorable.

Howard Hughes Holdings

Ackman has a strong 20-year investment record at Pershing Square, and he has long been a fan and student of Buffett. He now gets a chance to create a mini-Berkshire of his own.

Ackman is paying up to do so. His investment firm bought $900 million of Howard Hughes stock in May at $100 a share, nearly 50% above the recent price of $67, after months of negotiations with the company. Credit the board for getting a good price.

Investors can ride alongside Ackman for a fraction of what he paid. Through two of his investment vehicles, Ackman, now Howard Hughes' chairman, controls about half of the $4 billion market-value company.

Howard Hughes stock is languishing in part because it will take time for Ackman to create a diversified holding company and investors view the company as a work in progress. They're not wrong. Ackman aims to build or buy a P&C insurance business, while also acquiring smaller growth-oriented companies that may not want to sell out to private equity.

The strategy is also a way for Ackman to salvage his investment in Howard Hughes. Wall Street had never warmed to the company's strategy of developing master planned communities -- homes, offices, retail -- in big developments in Sunbelt cities Las Vegas, Phoenix, and Houston. It never produced consistent cash flow or paid a dividend. Ackman figured Howard Hughes had good assets but needed a strategy change.

The real estate business could be underappreciated, with the company pegging fair value at almost $120 a share, and the stock represents a play on what Ackman can do. Ackman's firm will charge the company a base annual fee of $15 million plus a performance fee based on how the stock does, which has brought some criticism.

Piper Sandler's Alex Goldfarb is a fan, carrying an Overweight rating and $85 price target. "We think Howard Hughes' potential as Pershing Square transforms it into a holding company is worth adding to investors' radar screens," he wrote this past week.

Greenlight Capital Re

This smallish reinsurer -- it has a market value of just $575 million -- has had a poor record since going public at $19 a share in 2007, and investors are skeptical that results will improve much. That presents an opportunity, since the stock trades for $14.50, roughly 75% of the March 31 book value of nearly $19 a share. It's rare to find a profitable insurer trading at such a discount to book.

Greenlight Re amounts to a discounted way to invest alongside Einhorn, who manages the company's $460 million portfolio. A value investor who also has been willing to short highflying stocks, Einhorn has badly trailed the S&P 500 over the past 10 years.

His fortunes may be changing. Einhorn had a good year so far, with Greenlight's investments returning about 5% through the end of May. Einhorn's holdings include gold, life insurer Brighthouse Financial, coal producer Core Natural Resources, plus a bet against the dollar.

Underwriting results were close to break-even in 2024 and slightly negative in the first quarter due in part to the California wildfires. The company's CEO of the past 17 months, Greg Richardson, has pedigree coming from Alleghany, which has had consistently good insurance results. That augurs well for future performance.

If Greenlight can deliver consistently from investments and insurance to generate a low-double digit ROE, the stock could trade into the $20s.

Write to Andrew Bary at andrew.bary@barrons.com

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June 06, 2025 19:54 ET (23:54 GMT)

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