Which Insurance Company Does Warren Buffett Own?

Warren Buffett is known for playing the long game. He doesn’t invest in companies just because he thinks he can generate a quick profit from them. Instead, he buys shares in companies with solid foundations, holds the stock, and waits for the rest of the world to recognize the value.

Famously, one of Buffett’s best bets has been in the insurance industry. He reportedly asked the parents of Ajit Jain, who runs his insurance operations, whether Ajit had a twin. Buffett regards Ajit highly and speaks of his enormous influence on Berkshire Hathaway’s growth. 

But when did Buffett’s interest in insurance first get piqued? Enter Geico.

Geico

Geico is a privately-owned insurance company that started nearly 90 years ago in San Antonio, TX.

It was in 1951 when Buffett, then 25, stumbled across the firm. As a junior analyst at Buffett-Falk & Co, he was charged with researching insurers, and Geico, founded by Jack Taylor, crossed his radar. 

Jack had a novel idea: why not sell insurance direct to consumers and avoid the middlemen. The idea was a hit, and the financials proved the concept had merit. Solid fundamentals attracted Buffett, who in 1952 snapped up a few shares. It wasn’t until 1967 that he acquired a controlling interest.

Berkshire Hathaway bought 100% of the business in 1996, turning Geico into a Berkshire Hathaway subsidiary.

Geico has more than 24 million auto policies in the United States. While the insurance provider primarily sells vehicle policies, it also offers homeowners, rental, life, travel, and business insurance policies.

Geico’s Recent Financials

Geico has struggled in recent years, posting a $3.5 billion underwriting loss in 2021 and a further $1.88 billion loss in 2022. 

Why did Geico lose so much money? Natural disasters forced the company to pay out to thousands of policyholders who suffered damaged property to hurricanes and other severe weather events.

A surge in auto thefts also hurt the company. Some areas of the country report a 400% increase in automotive theft over the last few years.

Can Geico Recover?

The global economy seems like it’s heading toward a recession. Assuming that happens, theft will probably remain high as some financially-challenged look for ways to make ends meet. When legitimate sources of income disappear, expect more people to find illegitimate sources.

Geico has a number of options to “right the ship” so to speak. It could hike prices to alleviate the financial stresses on the P&L. 

Reports are management will invest in technology to streamline underwriting. It may follow in the footsteps of Lemonade (LMND) for example, which was an early adopter of artificial intelligence in the insurance industry.

A further option will be to make claims processing simpler for consumers to alleviate the cost burden on processing those claims.

Alleghany Corporation

A duo of railroad entrepreneurs started Alleghany Corporation in 1929 as a holding company for their railroad interests. The railroad industry faced several severe challenges over the next several decades, leading Alleghany to switch its focus to insurance. It primarily offers business insurance policies through smaller companies in its portfolio. It also owns companies in the manufacturing, fabricating, and real estate development sectors.

Warren Buffett noticed Alleghany Corporation’s success and ability to pivot when facing difficult market conditions. Berkshire Hathaway offered to buy the business for $11.6 billion in cash in March of 2022. They finalized the deal in October of that year.

Buffett typically prefers to let companies continue operating independently when possible. He followed that route after acquiring Alleghany. It currently operates as an independent company.

Alleghany’s stock price skyrocketed after Berkshire Hathaway signaled its intent to purchase. Like most companies, it lost a lot of value in March of 2020 (falling from about $825 per share to about $450 per share). Shares were trading for around $600 when Berkshire Hathaway publicly shared its plan to acquire the company. 

General Reinsurance (Gen Re)

Gen Re started in 1921 as General Reinsurance Company. Originally formed in Norway, a group of American investors purchased it in 1923. Since then, it has gone through a long list of names. It currently operates as General and is commonly known as Gen Re.

Berkshire Hathaway purchased Gen Re in 1998 for about $15.9 billion. In the ’90s, it was fairly common for Buffett to acquire businesses via stock purchases. Berkshire Hathaway completed the deal by issuing 272,200 new shares in the company. The previous owners, therefore, got to hold some of their shares, creating the potential for them to profit from the insurance company’s success.

Those shares would grow to more than $69 billion by the late 2010s. Today, Buffett prefers buying companies with cash so he and his investors can avoid situations like this. He left some money on the table in that situation, but he also learned a valuable lesson that keeps Berkshire Hathaway profitable today.

Central States Indemnity (CSI)

Berkshire Hathaway acquired Omaha-based Central States Indemnity in 1992.

Buffett purchased 82% of the company’s shares for about $82 million (approximately $176.5 million in 2023 dollars).

The company primarily sells life and health insurance policies, including Medicare supplement insurance.

Berkshire Hathaway: The Insurance Secret?

One thing Buffett cottoned on to early on with insurance is the “float” which is the money insurers keep from premium payments before having to pay out claims. 

Why is the float so valuable?

Because Buffett gets to invest that “float” in higher yielding assets, whether wholly-owned companies Berkshire acquires or stocks.

Another aspect of insurance companies that is critical to long-term success is a careful underwriting process that screens out higher risk payers and limits risk of paying out claims. Buffett has been scrupulous about identifying qualifying insurance firms as acquisition targets.

By keeping a close eye on float and underwriting, Buffett has amassed a large fortune in insurance companies and there is no sign of that slowing down soon.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.