Warren Buffett · 1996 · Berkshire Hathaway Inc.
1996 Shareholder Letter
Buffett described insurance float — the money an insurer holds between collecting premiums and paying claims — as the central economic engine of Berkshire. He wrote that if underwriting is profitable over time, float is effectively a form of capital the insurer is paid to hold, and that the test of a great insurer is whether the long-run cost of float is negative. GEICO, he wrote, met that test because its low-cost distribution model produced sustained underwriting profits.
On the economics of float and the full GEICO acquisition.