Why Warren Buffett Loves the Insurance Industry and how it has fueled Berkshire Hathaway's Growth.

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Warren Buffett has a long and successful history in the insurance industry, and it has been a cornerstone of Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) growth strategy since the 1967 acquisition of National Indemnity. In fact, Buffett specifically referred to the insurance industry as Berkshire's "most important sector" in a letter to shareholders. Here's a rundown of why Buffett loves the insurance business so much.

Why Buffett loves the insurance business so much
In a nutshell, Buffett loves the insurance business for its financial structure.

Despite the common misconception, insurers' primary goal isn't to make money from the premiums they collect. If they can, it's a nice bonus, but it's generally not necessary for insurers to be profitable. In fact, many property/casualty insurers regularly operate at an underwriting loss, meaning that they pay out more money in claims than they bring in as premiums.

Instead, insurance companies collect sums of money known as float in advance for claims to be paid later, and invest this money in the in-between time for their own benefit. Essentially, Berkshire's insurance customers are letting them hang on to nearly $100 billion, which Berkshire can invest for the benefit of its shareholders.

Individual policies and claims come and go, but an insurer's float is usually a fairly steady amount over time. As the insurer's business grows, so does its float. In fact, Berkshire's insurance float has grown from just $39 million in 1970 to about $91.6 billion in 2016. Investing the float has been Berkshire's primary mechanism of growth over the years, and is how the company has grown into the massive conglomerate it is today. Buffett refers to the property-casualty insurance business as "the engine that has propelled our expansion since 1967."

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Why Warren Buffett Loves the Insurance Industry and how it has fueled Berkshire Hathaway's Growth.

Table of Contents

00:00 Introduction
00:55 The float
02:10 Berkshire Hathaway ideal insurance business
03:15 Reinsurance companies
04:00 Berkshires is one of the best insurance business
06:35 Why Berkshire has so much cash
07:00 Conclusion

#warrenbuffett #berkshirehathawaygrowth #Buffettlovesinsurance

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Disclaimer: I’m not a financial advisor. The information contained in this video is for educational and entertainment purposes only. Any recommendations shown during the video should not be considered financial advice and you should consult a licensed financial advisor before making any investment decisions. Books I have read and highly recommend, if you are just starting out on your investing journey I recommend starting at the top of your list and working your way down.