As of 2006, Berkshire Hathaway wrote the third-largest amount of net premiums in the reinsurance industry -- an amazing feat for a firm that started out making textiles. One of the key foundations of Berkshire's reinsurance business is its super-catastrophe line, and the company's annual shareholder letters offer an incredibly valuable case study of that segment's success. Let's take a closer look at the integral components of Berkshire's reinsurance division.

Against all odds

Berkshire's success in super-cat reinsurance, which insures very large catastrophic loss events, becomes more impressive in light of the challenges it faced. Capable reinsurers such a RenaissanceRe , XL Capital, and Montpelier Re compete fiercely for market share. In addition, barriers to entry are minimal, with recently formed reinsurers such as Flagstone Re and Greenlight Re almost constantly emerging. Lastly, reinsurance is a commodity to some extent.

Thus, Berkshire boss Warren Buffett had to overcome considerable obstacles to build his reinsurance operations into the juggernaut they are today. Since day one, Buffett based his strategy on three simple strengths: speed, size, and security.