Insurance Premiums Fund Buffett’s Bonanza

SeekingAlpha tells the backbone of Warren Buffett’s Berkshire Hathaway investment strategy is the float from his insurance and reinsurance businesses, most notably GEICO and commercial insurance, including malpractice and workmen’s compensation. The float refers to premiums paid, like life insurance, that may take decades before the payout. At year’s end 2010, Berkshire had $66 billion in float which was invested in stable corporate and government bonds. The article notes all insurers invest their float, but none have had the success of Buffett in equity investments. Berkshire’s 2010 10-K report says: “Compared to other insurers, our insurance subsidiaries invest an unusually high percentage of their assets in common stocks and diversify their portfolios far less than is conventional.” In addition to its wholly-owned subsidiaries–Fruit of the Loom, Dairy Queen, Johns Manville, Clayton Homes, Benjamin Moore Paint, Helzberg Diamonds, Burlington Northern, to name a few—Berkshire has major holdings in Blue Chip stocks—Coca Cola, IBM, Goldman Sachs, Wells Fargo, American Express, Proctor & Gamble, Kraft Foods, Wal-Mart, among others. The conglomerate, with $200 billion in assets, is the 11th most highly-valued, publicly-traded company in the world, with pre-tax earnings this year expected to come in at $17 billion. (Graph: From Jan. 22, 1990 to Dec. 22, 2011, Berkshire Hathaway growth is in blue, S&P  noted by red line.)

(Graphic credit: Yahoo!Finance)

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