NEW YORK (Reuters) - Warren Buffett's annual letter to Berkshire Hathaway Inc  shareholders may hint at what's next in his bold foray into bond insurance but is unlikely to give specifics on his search for a successor.

Berkshire said it plans to release Buffett's commentary, perhaps the most dissected shareholder letter in corporate America, and its annual report Friday afternoon.

Unlike most CEOs who provide sterile, lawyer-massaged, upbeat overviews of their companies, Buffett writes in homely terms about what he wants: his successes, his mistakes, and the markets and the economy and the people who mess them up.

"This is exactly Buffett's kind of market, with dislocations in the financial space," said Mohnish Pabrai, author of "The Dhandho Investor" who models his portfolios after Buffett and last June agreed to donate $650,100 to charity to dine with the billionaire.

One dislocation is in the troubled bond insurance industry, where the security of Omaha, Nebraska-based Berkshire's "triple-A" credit rating holds great appeal for issuers and investors. Buffett created his own bond insurer in December, led by Berkshire's top insurance executive, Ajit Jain.

But Buffett will talk about more. Last year's letter ran 22 pages and some 13,000 words on such issues as the soaring U.S. trade deficit, the government's and individuals' over-reliance on debt, greedy hedge funds and excessive executive pay. Buffett takes a $100,000 annual salary to run Berkshire.

Still, Buffett, 77, may be coy on the issue of succession.

To be sure, America's most famous investor, the so-called Oracle of Omaha, now thinks more about his legacy and the day he ends his now 43-year run at Berkshire.

He has committed much of his roughly $52 billion net worth to charity, mainly the Bill & Melinda Gates Foundation. And an authorized biography is slated for September release.

Buffett has said he has three internal candidates to succeed him as chief executive, and four candidates to run Berkshire's $107 billion stock-and-bond portfolio as chief investment officer.

Berkshire did not respond to a request for comment.

Speaking in Toronto on February 6, Buffett said youth may be a priority for his board. "Anybody who takes my (CEO) job would do better if they have a long run ... say 15 years," he said.

Analysts have long touted as CEO candidates Jain, General Re Corp's Joseph Brandon, MidAmerican Energy Holdings Co's David Sokol, Geico Corp's Tony Nicely, and NetJets Inc's Richard Santulli. Nicely and Santulli are already in their 60s.

As for the CIO candidates, Buffett said "there's no reason to bring them on now," though all showed "not only the desire but the eagerness ... to come with us the day I go ga-ga."

Chad Kane, who invests $950 million at WoodTrust Asset Management in Wisconsin Rapids, Wisconsin, said, "It's hard to state your successor when you don't know when you're going to hang it up. It's possible all seven names could change."

DRY POWDER AMID TURBULENCE

Buffett built Berkshire into a $216 billion collection of more than 70 companies selling ice cream, paint, underwear and Ginsu knives and buying such stocks as Coca-Cola Co, Procter & Gamble Co and Wells Fargo & Co.

News on February 14 that Berkshire had taken a $4.32 billion stake in Kraft Foods Inc spurred a 6.9 percent jump the next day in shares of the maker of Maxwell House coffee, Oreo cookies and Cheez Whiz.

And despite purchases such as December's agreement to buy a $4.5 billion stake in an industrial group owned by Chicago's Pritzker family, Berkshire has plenty of dry powder for a big acquisition. It ended September with $47.08 billion of cash.

Berkshire has fared well in turbulent markets. Its stock rose 29 percent in 2007, dwarfing most stocks and the 8 percent decline in the Standard & Poor's insurance index .

Still, fourth-quarter operating profit may fall amid pressure on insurance premiums. "(Property and casualty) rates will be less adequate in the next couple of years," Buffett said in Toronto.

Analysts on average expect fourth-quarter profit excluding investments to fall 9 percent from a year earlier to about $2.6 billion, or $1,692 per Class A share, according to Reuters Estimates.

The housing crisis could also hurt several Berkshire units, such as Acme Brick Co, insulation maker Johns Manville, carpet maker Shaw Industries Group Inc, and HomeServices of America Inc, a large residential real estate brokerage.

Buffett has also generated controversy.

He offered this month to reinsure $800 billion of largely safe municipal debt backed by MBIA Inc, Ambac Financial Group Inc and FGIC Corp. But he demanded hefty premiums, and the insurers would have remained saddled with exposure to riskier, subprime-related and other complex debt.

"I think he would have been somewhat surprised had they accepted his offer," Kane said.

And on Monday, a federal jury in Connecticut found five former insurance executives, including four from General Re, guilty of fraud over a transaction to inflate the balance sheets of the insurer American International Group Inc. Defense lawyers said Buffett knew of the transaction. Buffett was never called to testify. He has denied wrongdoing.

Buffett may not address the case in his letter, but he will have much to say. Though when he does, including on succession plans, it's often a variation of things he has said before.

"I jump out of bed every morning and tap dance to work," he said in Toronto. "I'm having the time of my life."

He's long been spry for that two-mile journey. "I tap dance into work," Buffett once told the Washington Post. In 1991.

(Editing by John Wallace)

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