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Warren Buffett calls insurance Berkshire Hathaway's most important sector

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Re: Warren Buffett calls insurance Berkshire Hathaway's most important sector

#11

Post by tptacek »

valuearb wrote: post #9
lordnacho wrote: post #5

Well that's not surprising. He uses the float to generate investment returns, so he needs it to work. There's possibly an extra bonus; if your investment division is good at generating returns, which it is, your insurance division doesn't have to take the same risks that other insurers do. This can mean that you net end up making money on that side as well, since you don't get burned by as many hot potatoes. No idea…

It's actually the reverse. Buffett requires his insurance companies write profitable policies, so that interest earned on the float is gravy. When one suffers through an inevitable bad year (Gen Re a recent example) float interest is a greater margin of safety. Most insurers write unprofitable policies and use float interest to cover those losses and make a profit. When they have a bad year, they often lose horrendou…

Berkshire entered insurance in 1967; were their best years prior to that?

Re: Warren Buffett calls insurance Berkshire Hathaway's most important sector

#12

Post by valuearb »

kchoudhu wrote: post #3

There's also his ownership stake in NVEnergy, which exploits Nevada's citizenry using a government sanctioned monopoly. Solar died in Nevada in no small part due to Buffet's lobbying; don't be fooled by the aww-shucks demeanour, the dude is a shark.

"We do not want our million plus customers that do not have solar to be buying solar at 10.5 cents when we can turn it out for them at 4.5 cents or buy it for them at 4.5 cents,” Buffett told CNBC Monday morning during a wide-ranging interview. “So we do not want the non-solar customers, of whom there are over a million, to be subsidizing the 17,000 solar customers.”

The real shark was Musk, who was just mad that he wasn't able to force consumers to buy solar at more than twice the cost of other energy to subsidize his solar business, like he got the poor taxpayers of Nevada to subsidize his factory.

Re: Warren Buffett calls insurance Berkshire Hathaway's most important sector

#13

Post by valuearb »

tptacek wrote: post #11
valuearb wrote: post #9

Earlier quoted context omitted.

It's actually the reverse. Buffett requires his insurance companies write profitable policies, so that interest earned on the float is gravy. When one suffers through an inevitable bad year (Gen Re a recent example) float interest is a greater margin of safety. Most insurers write unprofitable policies and use float interest to cover those losses and make a profit. When they have a bad year, they often lose horrendou…

Berkshire entered insurance in 1967; were their best years prior to that?

Buffett's best years were the Buffett Partnerships, from 1956 to 1969 (iirc), where his returns averaged 40% per year.

Berkshire has benefitted from insurance float for a long time, but it's a minor benefit. Float can't be invested in the stock market, it's extremely restricted in it's usage, and it's only been helpful because of the incredibly disciplined way Berkshire runs it's insurance companies. Proof is it never gave Berkshire Hathaway remotely the returns the Partnerships achieved.

Re: Warren Buffett calls insurance Berkshire Hathaway's most important sector

#14

Post by sethev »

valuearb wrote: post #9
lordnacho wrote: post #5

Well that's not surprising. He uses the float to generate investment returns, so he needs it to work. There's possibly an extra bonus; if your investment division is good at generating returns, which it is, your insurance division doesn't have to take the same risks that other insurers do. This can mean that you net end up making money on that side as well, since you don't get burned by as many hot potatoes. No idea…

It's actually the reverse. Buffett requires his insurance companies write profitable policies, so that interest earned on the float is gravy. When one suffers through an inevitable bad year (Gen Re a recent example) float interest is a greater margin of safety. Most insurers write unprofitable policies and use float interest to cover those losses and make a profit. When they have a bad year, they often lose horrendou…

Float can be invested in pretty much anything. You're right that as an industry it tends to go into low risk fixed income investments but that's because it's safe (and easy for companies whose core strength is selling insurance) not because it's required.

Re: Warren Buffett calls insurance Berkshire Hathaway's most important sector

#15

Post by Jtsummers »

valuearb wrote: post #12
kchoudhu wrote: post #3

There's also his ownership stake in NVEnergy, which exploits Nevada's citizenry using a government sanctioned monopoly. Solar died in Nevada in no small part due to Buffet's lobbying; don't be fooled by the aww-shucks demeanour, the dude is a shark.

"We do not want our million plus customers that do not have solar to be buying solar at 10.5 cents when we can turn it out for them at 4.5 cents or buy it for them at 4.5 cents,” Buffett told CNBC Monday morning during a wide-ranging interview. “So we do not want the non-solar customers, of whom there are over a million, to be subsidizing the 17,000 solar customers.” The real shark was Musk, who was just mad that he…

Nevada residents don't pay income taxes. They pay sales and property taxes (primarily). The majority of the income in the state, however, comes through sales taxes. Almost certainly not all from residents. Nevada itself is subsidized by outsiders visiting the state.

The people of Nevada lose more money in what they choose not to tax the casinos that whatever they may have directly or indirectly put into Musk's factory.

Some details on Nevada's revenue: https://ballotpedia.org/Tax_policy_in_Nevada

Re: Warren Buffett calls insurance Berkshire Hathaway's most important sector

#16

Post by rayiner »

kchoudhu wrote: post #3

There's also his ownership stake in NVEnergy, which exploits Nevada's citizenry using a government sanctioned monopoly. Solar died in Nevada in no small part due to Buffet's lobbying; don't be fooled by the aww-shucks demeanour, the dude is a shark.

It’s a regulated public utility, like almost every electric distribution company. Nevada’s electric rates, which are subject to government review and approval, are below the national average. What’s exploitive about it?

Re: Warren Buffett calls insurance Berkshire Hathaway's most important sector

#17

Post by ggm »

I think whats interesting is the role of insurance in economics going back to the fourteenth century or earlier.

Trade demanded ship insurance. Risk capital was locked up behind usury laws (can't lend money and be a good christian, and we killed or expelled all the jews so thats a ... bit of a problem right there..) but insurance for profit at end was legal. The whole UK debt finance from life expectancy, actuarial tables, the long-term rate of insurance as a cost..

Maybe Buffet is just looking into deep economic time and deciding he can live with backing a form of capital investment which pays back over the 100+ year model.

Re: Warren Buffett calls insurance Berkshire Hathaway's most important sector

#18

Post by tptacek »

valuearb wrote: post #13
tptacek wrote: post #11

Earlier quoted context omitted.

Berkshire entered insurance in 1967; were their best years prior to that?

Buffett's best years were the Buffett Partnerships, from 1956 to 1969 (iirc), where his returns averaged 40% per year. Berkshire has benefitted from insurance float for a long time, but it's a minor benefit. Float can't be invested in the stock market, it's extremely restricted in it's usage, and it's only been helpful because of the incredibly disciplined way Berkshire runs it's insurance companies. Proof is it neve…

That's an interesting argument because basically any modern Berkshire letter you read is going to say something along the lines of insurance being "the most important" part of BRK, an "all-important" component of their revenue, "the cornerstone of Berkshire", "our core business and the propellant of our growth since we purchased National Indemnity", "our main business", "a huge winner", "exceeds its book value by more than any other Berkshire business", &c.

(Can you tell I just plugged a bunch of random years plus "Berkshire letter" into Google? I didn't find a single one that didn't play up insurance; I'm not leaving any out.)

In 1994, he even laments exiting a position in GEICO in the 1950s as one of his major mistakes!

Re: Warren Buffett calls insurance Berkshire Hathaway's most important sector

#19

Post by Nokinside »

tptacek wrote: post #10

Search for any recent year and "berkshire letter", then, in the PDF, search for "insurance", and you'll see Buffett saying something similar going back as far as you can find Berkshire shareholder letters.

The real genius of Buffet is not the ability to make series of good investments, it's how he has structured his business.

Berkshire makes steady amount of money (float and profit) from insurance business. They have always cheap money to invest, even in bad times when money is expensive.

When there is downturn and buying opportunities arise, other investors must sell something good, arrange expensive financing, or dilute their stock to buy something new. Buffet just buys.

Re: Warren Buffett calls insurance Berkshire Hathaway's most important sector

#20

Post by tptacek »

Jtsummers wrote: post #15
valuearb wrote: post #12

Earlier quoted context omitted.

"We do not want our million plus customers that do not have solar to be buying solar at 10.5 cents when we can turn it out for them at 4.5 cents or buy it for them at 4.5 cents,” Buffett told CNBC Monday morning during a wide-ranging interview. “So we do not want the non-solar customers, of whom there are over a million, to be subsidizing the 17,000 solar customers.” The real shark was Musk, who was just mad that he…

Nevada residents don't pay income taxes. They pay sales and property taxes (primarily). The majority of the income in the state, however, comes through sales taxes. Almost certainly not all from residents. Nevada itself is subsidized by outsiders visiting the state. The people of Nevada lose more money in what they choose not to tax the casinos that whatever they may have directly or indirectly put into Musk's factor…

So you're saying the taxpayers fund things through an even more regressive process than income taxes.
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