National Indemnity
Strategic Concepts & Mechanics
Primary Evidence
"When Buffett acquired National Indemnity in 1967, he was among the first to recognize the leverage inherent in insurance companies with the ability to generate low-cost float. The acquisition was, in his words, a “watershed” for Berkshire. As he explains, “Float is money we hold but don’t own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money.”2 This is another example of a powerful iconoclastic metric, one that the rest of the industry largely ignored at the time."
"This sawtooth pattern of revenue (see figure 8-2) would be virtually impossible for an independent, publicly traded insurer to explain to Wall Street. Because, however, Berkshire’s insurance subsidiaries are part of a much larger diversified company, they are shielded from Wall Street scrutiny. This provides a major competitive advantage—allowing National Indemnity and Berkshire’s other insurance businesses to focus on profitability, not premium growth. As Buffet has said, “Charlie and I have always preferred a lumpy 15 percent to a smooth 12 percent return.”3"