Handicapping the Buffett Succession

Last summer, as financial markets swooned following an unprecedented downgrade of U.S. debt, Ajit Jain got a chance to walk in Warren Buffett's shoes.

Jain, who runs Berkshire Hathaway Inc.'s giant reinsurance division, made an unsolicited bid for Transatlantic Holdings Inc. The insurer had already agreed to a merger and was being circled by other potential suitors. But a drop in the value of those cash-and-stock proposals amid the U.S. debt crisis seemingly opened the door for an all-cash offer from Berkshire's Jain. It was just the sort of opportunistic investing that Buffett is the acknowledged master of.

The unusual approach to Transatlantic--Jain submitted his bid in a brief letter that laid out a tight deadline and undercut other bids--failed to win over executives and advisers of the insurer, which instead chose to merge with another firm months later. A person close to the negotiations said Transatlantic would have preferred to have gotten a call or offer from Buffett himself, and was unsure of Jain's plans for the business and its management.

The bid was a departure for the 60-year-old Jain, whose reinsurance savvy has made Berkshire Hathaway billions of dollars and led Mr. Buffett to shower him with praise on many occasions. The bid also points to the many demands awaiting the person who will eventually succeed Buffett as chief executive of Berkshire Hathaway, including the need to identify acquisition targets and be able to negotiate and complete deals.

The question of who will succeed Buffett has taken on added urgency following the 81-year-old billionaire investor's recent prostate-cancer diagnosis. Though Buffett doesn't expect his treatment to have a big impact on his work and said his condition isn't life threatening, many investors going to the Omaha, Neb., company's annual meeting this weekend will be looking to learn more about his health and his succession plans.

Jain, who didn't respond to requests for comment, has long been viewed as a front-runner for the top job, given his understanding of risks and success as an allocator of capital--though his status as one of the favorites is based entirely on speculation by Buffettologists who look to Buffett's words and actions for clues.

Indeed, Jain is older than some other Berkshire managers who are perceived as possible successors to Buffett, and is less known for acquiring other large businesses. Some Berkshire followers think the board might favor a younger CEO who has a longer runway ahead of him, especially as Buffett is expected to continue running the company for five to eight more years. Age considerations have caused analysts to strike other prominent Berkshire managers from the list of potential replacements, such as Tony Nicely, the longtime chief of Berkshire-owned car insurer Geico Corp., who is in his late 60s.

Analysts at Dowling & Partners said in a February report that after reviewing over a dozen possible CEO candidates and considering their ages, they would focus on Matt Rose, who runs railroad operator Burlington Northern Santa Fe, and Greg Abel, chief of utility operator MidAmerican Energy. Rose and Abel, 53 and 49, respectively, have been involved in acquisitions in their respective industries, the analysts said, adding that each has "experience that would be useful at the helm of Berkshire."

Buffett has said one of Berkshire's subsidiary managers has been identified to be its next chief executive and has sought to assure shareholders of an orderly leadership transition. The successor will oversee a sprawling conglomerate with more than 270,000 employees and dozens of disparate businesses from railroads to manufacturers and be responsible for maintaining a corporate culture that Buffett developed over nearly five decades. Perhaps most important, Buffett has said the next CEO will have to negotiate large deals for Berkshire and acquire more businesses for its ever-growing collection. Buffett has separately hired two investment managers, Todd Combs and Ted Weschler, who will take over responsibility for Berkshire's $100 billion-plus portfolio of stocks, bonds and other investments after he steps down or dies. Buffett said in his annual letter to shareholders in February that he also expects the pair to help Berkshire's future CEO in making acquisitions.

Fans of Jain see a man who shares many of Buffett's qualities. He is highly regarded by colleagues and rivals, and widely described as smart, good-natured and quick at cutting to the essence of complicated business matters. He forgoes the usual raft of consultants, modelers and lawyers that are involved in insurance transactions. His office in Stamford, Conn., with a worn-out carpet and a too-close view of passing commuter trains, belies the money his business earns for Berkshire each year. He is close to Buffett, and built Berkshire's reinsurance business from a tiny company in the mid-1980s into a behemoth today.

A string of large insurance agreements he struck over the years have brought in tens of billions of dollars in long-term funds for Berkshire to invest—including disability coverage for baseball player Alex Rodriguez and a life-insurance contract on former boxing champ Mike Tyson. Twice Jain insured contests in which PepsiCo Inc. would have given away a billion dollars in the unlikely event that a monkey drew a series of numbers correctly on national television.

"The expertise that he brings to the table is the ability to size up substantial deals on fragmentary information very, very quickly," said Bob Hamman, founder and president of SCA Promotions, the company that organized the Pepsi drawing. "That's not a common commodity."

Like Buffett, Jain is viewed a tough negotiator who is willing to let a deal go if he can't get the price he wants, as illustrated by his approach to Transatlantic. He is always ready to jump on opportunities when rivals aren't willing or able to follow suit.

In recent months, Jain has traveled repeatedly to Thailand to come up to speed on the manufacturing sector there after severe flooding in 2011 caused $12 billion in insured losses, said Rod Fox, founder and CEO of TigerRisk Partners, a reinsurance brokerage. Many insurers and reinsurers across the globe were surprised at the extent of the flooding, and have been looking to reduce their exposure to future losses by selling less coverage there. That has sent the price of coverage soaring and brought Jain off the sidelines to take advantage of the opportunity.

"It's a classic example of how he can jump in instantly," said Fox, whose office is a few floors above Jain's in Stamford. "He's become one of the largest reinsurers in that area pretty much overnight."

Born in the eastern Indian state of Orissa, Jain got an undergraduate degree in engineering at the Indian Institute of Technology in Kharagpur in 1972 and worked as both an engineer and salesman for International Business Machines Corp. in India before going to Harvard University for a business degree, according to Robert Miles, author of "The Warren Buffett CEO," published in 2001. He joined Berkshire in 1986. Buffett has often said that he speaks to Jain every day, more than any of the dozens of other Berkshire managers who report to him.

Jain's proponents point out that Buffett's effusive praise for Jain's intelligence, character and business sense outstrips the kind words he showers on any other manager. And those that know Jain say Buffett isn't exaggerating.

"He's a very well-rounded, well-balanced business mind who I think manages risks very thoughtfully," said Peter Hancock, the head of property-casualty operations at American International Group Inc., who has known Jain for a decade. "He's plenty quantitative but he has a very strong sense of when common sense needs to override any kind of quantitative methods."

"He would be an excellent leader of Berkshire Hathaway," Hancock said. "Absolutely."

This story first appeared on WSJ.com

Write to Erik Holm at erik.holm@dowjones.com and Serena Ng at serena.ng@wsj.com