Insurance Float - Explained
A beginner-friendly explanation of Insurance Float in value investing.
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Insurance Float Explained
Premiums collected upfront but paid out later, creating "float" that Berkshire invests at high returns — the foundation of Berkshire's capital advantage.
What It Means for Investors
How Float Works
The Mechanics
Collect Premiums → Hold as Float → Invest in Securities → Pay Claims Later
[Upfront] [Years later] [Earn returns] [When due]
The Beautiful Business
"Insurance float is a unique structural advantage that lets us invest other people's money at high returns."
Key insight: If float can be held at low or zero cost (through profitable underwriting), the investment returns on that float are essentially pure profit.
Berkshire's Float History
Growth Trajectory
| Year | Float ($B) | Notes |
|---|---|---|
| 1970 | $0.039 | Early days |
| 1980 | $0.237 | Growing |
| 1990 | $1.6 | Steady |
| 2000 | $27.9 | Major growth |
| 2008 | $58.5 | Through crisis |
| 2010 | $65.8 | Recovering |
| 2018 | $122.7 | Massive scale |
$122.7 billion in float by 2018 — all invested at high returns.
Key Takeaway
Premiums collected upfront but paid out later, creating "float" that Berkshire invests at high returns — the foundation of Berkshire's capital advantage.