May 2, 2009, 3:47 PM ET

Scenario: Nationalization of the Insurance Industry

OMAHA, Neb. — In response to a question about what is the worst possible development for Berkshire Hathaway’s vast insurance operations, Warren Buffett had a unique answer: nationalization.

If inflation spiked, and insurance policies became extremely expensive, pressure could rise on the government to nationalize the insurance industry, he said during the company’s annual meeting here.

“When people get outraged, politicians respond,” Mr. Buffett said. “Wild inflation would be the most likely cause of something like [nationalization] happening.”

Of course, it’s highly unlikely that such an extreme development would happen, he added. But he did note the example of Social Security, which is a form of a nationalized annuity.