Warren Buffett once told Berkshire Hathaway shareholders that the conglomerate would be lucky to be worth half its value today had it not acquired General Re, the reinsurance company he bought in 1998, despite the unit’s underwhelming underwriting record for much of its history. The remark appeared in Buffett’s annual shareholder letter reviewing 2004 results, at a time when General Re’s own operating performance remained modest compared with Berkshire’s other insurance arms.
General Re’s underwriting profit that year came in at a scant USD 3 million, dwarfed by the USD 970 million and USD 417 million posted by Geico and Berkshire Hathaway Reinsurance respectively, two of Berkshire’s other major insurance subsidiaries. Yet Buffett’s praise for the acquisition rested not on underwriting results alone, but on the sheer scale of “float” the business generated the pool of premium income insurers hold before paying out claims, which Berkshire has historically used to fund investments and acquisitions elsewhere in the conglomerate.
Why float, not profit, was the pointBuffett has long described float as one of Berkshire’s most powerful assets, so long as it doesn’t come at a high cost. Its value is determined by underwriting results how the premiums collected compare with the losses and expenses ultimately paid out. Berkshire has achieved an underwriting profit in roughly half of its nearly four decades in the insurance business, according to Buffett’s own account, a rate he has said outpaces most rivals in the property-casualty industry, where insurers typically operate at an aggregate underwriting loss.
At the time of Buffett’s remark, Gen Re carried the largest float among Berkshire’s insurance subsidiaries, at $23.6 billion, even as its standalone profitability lagged behind smaller units. That scale meant Berkshire could deploy Gen Re’s float into stocks and outright company purchases, compounding returns well beyond what the insurance arm generated on its own books.
Business that kept shrinking, yet kept paying off
Unlike a conventional growth story, Gen Re’s contribution to Berkshire came despite periods of underwriting weakness and a business that did not consistently expand. Buffett’s point was that the unit’s value to Berkshire lay less in its year-to-year profit performance and more in the durability and size of the float it generated, capital Berkshire could redeploy patiently across decades rather than treat as a one-off windfall.
Why it matters today
The episode remains a touchstone for how Buffett has valued businesses throughout his career: not purely on reported earnings, but on the capital they free up for reinvestment elsewhere. It also underscores insurance’s foundational role in Berkshire’s structure since Buffett’s original purchase of National Indemnity in 1967, a strategy that has since expanded the conglomerate’s float from roughly USD 19 million to well over USD 170 billion in recent years.
What to watch
With Buffett having stepped back from Berkshire’s day-to-day leadership, successor Greg Abel inherits a conglomerate still built substantially on insurance float. Investors will be watching whether Berkshire’s insurance operations, including Gen Re, continue generating the underwriting discipline and scale that Buffett credited with doubling the company’s worth, even as leadership transitions to a new era.
