"Buffett's Prince of Risk": Ajit Jain Q&A Transcript || NDTV India (2011)

"You tell us what the rules are and we play by the rules. We might not like the rules, but that’s life."

In 2011, Ajit Jain of Berkshire Hathaway granted a very rare interview¹ to NDTV India for a television special titled “Buffett’s Prince of Risk”. For close to thirty minutes, he fielded questions from journalist Anjana Menon on topics ranging from Berkshire’s insurance operations to matters of retirement, legacy, and philanthropy.

Over the past few weeks, I transcribed (and lightly annotated) his remarks for posterity and future study.

A few notes:

• Each transcript is done entirely by hand — with no AI or software assistance — so any and all mistakes are my own.

• I summarized and paraphrased a few of the questions for clarity and space. All of Ajit Jain’s answers are transcribed verbatim.

• I added footnotes — 20 in all — to provide additional information at relevant points. Hopefully, these will prove useful to readers.

• The full transcript is available to all paid supporters. Free subscribers have access to the first 1,800-ish words. (That’s longer than the typical Kingswell article.)

  • I’ve tried to do my best to ensure that no one feels short-changed.

• Become a paid subscriber today and receive immediate access to this transcript — along with eight other annotated transcripts full of wit and wisdom from the top names at Berkshire Hathaway.

Now, without further ado, here is the complete transcript of Ajit Jain’s discussion with NDTV India from 2011…

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Anjana Menon: Hello and welcome to our special show!

I’m Anjana Menon and my guest today is Ajit Jain, who looks after the reinsurance business of Berkshire Hathaway. Reinsurance² has been the pillar of Hathaway’s success. Ajit Jain has featured in many an article as a likely successor to the world’s smartest investor, Warren Buffett.

I’m going to open the show with what Buffett had to say about the man I’m about to interview.

Video of Warren Buffett: I owe the people of India an enormous amount for sending me Ajit Jain. Ajit, he walked in the office on a Saturday, I think, in 1985 and I knew I was looking at and talking with somebody with incredible talent.³

Ajit has probably made a lot more money for Berkshire Hathaway than I have. He loves what he does. He’s not looking to take my job. If he was, the Board of Directors would probably put him in there in a minute. He is extraordinary. He’s not just an extraordinary business executive — he’s an extraordinary human being. He’s one of the most remarkable… I really feel about him like I feel about a brother or a son.

AM: Is it easy to get used to that [kind of praise], though he has said it in different words many times before?

Ajit Jain: As I’ve mentioned in the past, I would get used to it if I felt those comments were well-deserved. He’s been very generous with his comments. It has been a real pleasure for me to work for Berkshire Hathaway and to work for Warren. And, like he said, I love my job and there’s nothing I would trade it for.

AM: But does it also act as a constant pressure to outperform because that’s the parameter he’s setting?

AJ: It does and it doesn’t. It does in as much as you always want to live up to the expectations people have for you. It doesn’t because, unlike a lot of executives, he’s very rational about expectations. And, more than rational, I think he’s one of the few executives and bosses that I can think of who does a very good job in terms of distinguishing between outcome and decision-making before the event happened.

The world, the way it works, they look at outcome and you may have made a good decision which ends up in a bad outcome — and everyone comes down on [you] like a ton of bricks. By the same token, on the flip side, you might make a bad decision and end up with a good outcome and you get all of the glory under the sun. Warren does an incredible job in terms of decoupling the two — and measuring and evaluating people and the people who work for him in terms of the quality of the decision that was made before you know the outcome.

In a sense, that makes it very easy to work for a human being who’s rational, who you’re very clear about what is it that’s important, and he sets very clear guidelines in terms of expectations [and] in terms of the ethics and how business should be conducted. And, pretty much, within those very broad boundaries he leaves you to manage the business as you think best.

AM: You’ve got the reputation in the market that you take the biggest risks — be that the reinsurance of the Sears Tower, the Winter Olympics, the $1 billion sweepstakes that Pepsi has.⁴ Some would say you have a gambler’s appetite for risk. Warren, on the other hand, always says about you that you’re very disciplined. How does all of that reconcile with the image of being very disciplined?

AJ: Firstly, when you think about investment [and] when you think about insurance, it is about risk. And, in a sense, risk is synonymous with gambling. Gambling, unfortunately, has bad connotations. I like to refer to it as prudent risk-taking.

The fundamental aspect of risk-taking is you’ve got to be able to assess what are the odds of something bad happening to you — however subjective that process might be. And if something bad were to happen to you, how bad is that and being able to define how bad that is.

That’s a fairly simple, straightforward equation — you don’t need more than high school algebra to be able to handle that. And, then, to make sure that you get paid so that you have a margin of safety over and above what you think are the odds and the expected value of a loss — without getting hyper-technical. People can complicate the process — and we do tend to complicate the process.

We are in the risk-taking business. There are a lot of factors that come into play in terms of taking the risk. Clearly, one is the pricing of the risk. But, then, the business — the way it’s conducted — there’s a lot of pressure to do deals. You don’t want to lose market share. You don’t want to have your distribution force mad at you for not writing business. So a number of factors come into play. Besides the fact that people just like to take risks. I mean, that’s something they like to do.

So I think the discipline is in terms of being able to say no — and having the ability and the willingness to say no if you feel you’re not getting the right price for taking the risk.

Now, having said that, we at Berkshire have an advantage in as much as there’s nothing forcing us to write risk if we don’t feel it’s adequately priced. So we can have a fairly rational approach to taking risk without regard to trying to meet some grand target or trying to conquer the world and get market share. We have a single-minded focus on making sure we can assess the risk — and, if we can’t assess the risk, we just say pass to it. And if we can assess the risk, we [still need to] get a price that adequately compensates us for risking our capital.

AM: Is that part of the three underwriting rules⁵ that he constantly talks about?

AJ: You’ve done your homework. Absolutely. We all tend to overcomplicate it — but there’s some basic fundamental rules that he talks about. There will be a loss every now and then, but as long as you stick to it over the long run you’ll come out ahead.

AM: Warren Buffett also, a couple of years ago, mentioned that he would like his son Howard to be non-executive vice chairman at Berkshire Hathaway in order to preserve the culture. What is that culture that he talks about?