longterminvestor

article is behind a paywall. when it went to print, speculators followed hence the volume/price spike. https://www.insuranceinsiderus.com/login-access?returnUrl=%2F&zephr_sso_ott=rhsIeg

Maybe this will help folks understand of hard/soft market cycles. Insurance market "hard vs soft" is identical to stock market "bull vs bear". Bull Market = Soft Market attitudes, Bear Market = Hard Market attitudes. In a Soft market, underwriters lose their minds, make irrational decisions with regards to fundamentals, no fear - everything is rosy, care free, underwriters say "YES" alot and "everyone is making money" attitude persists. In a soft market, the old school underwriters say "this can not go on forever" and the new guys say "you guys are dinosaurs, we are killing it".....until the roof falls in...or doesn't...thats the bet. Soft market means terms conditions get sweeter and price goes down = bad equation for insurance companies. and brokers have a field day because they are getting BETTER market execution for their clients albeit commission revenue does compress HOWEVER good brokers can sell more product into a soft market cycle. In a soft market, as a broker you just send an underwriter a competitor quote and say "youre gonna let this other idiot make all the money?" BOOM, they match or beat the price and in many cases they will increase the commission to sell their deal. Brokers really don't do a good job in soft markets for their clients because price alone is what the clients care about but a good broker can enhance the terms and conditions to the paper contract in a soft market with ease. A Hard market on the other hand, underwriters set the price, terms, conditions cause they know they are winning. Imagine being an underwriter for financial D&O for banks in 2007. You could put out quotes with a bankruptcy exclusion for a bank in a D&O policy and win! That defines what underwriters CAN DO in a hard market. Hard market you can put a roof exclusion on a property policy and client will still buy it. NUTZ right? Buyers/Brokers loose their minds in a hard market because things get tough, every underwriter says no. Gotta stick with your partners through the cycles. Its an amazing game. Mr. Buffett wins in a hard market. because he knows the risk is the same, its just he can charge more in a hard market. Think of it this way, does the hurricane know its a hard market when its coming to Florida or Texas? The hurricane doesn't care! It's coming (or not coming) just the same. The odds are the same either way, its the capacity being put into the market that drives drive up or down, hard or soft. Its just like stocks, the market doesn't know what you paid for the stock as much as you stare at it and fondle it, the price of the equity will go where it goes based on fear and greed or fundamentals of a good/great business. Just like the insurance cycles hard vs. soft. A good risk is a good risk whether its a hard or soft market, good risks just get better execution. ALL stock brokers look like kings in a bull market, just like insurance brokers look like kings in a soft market. The inverse its true as well for bear market/hard market. Dumb money shows up in a soft market. Smart money waits for the hard market. They very much rhyme.

When you are worth $5B+, a couple mil is like our version of a cup of coffee. haha

substack doing a decent job describing industry. Says a BRO specific substack is forthcoming. Roughly right but I am a tough critic on details/mechanics. Writer has some nuance off buts a decent attempt to get understanding of distribution. https://open.substack.com/pub/eaglepointcapital/p/insurance-brokers-softening-market?utm_campaign=post-expanded-share&utm_medium=web

Looking at Price to Cash Flow, BRO (13Xish) is cheaper than AJG (20X ish). WTW is cheapest on Price/Cash Flow however just seems like WTW is a wounded bird. Dont know the WTW business that well to comment but there was a large write off that scared me (WTW got smoked on a deal). I also like the fact that BRO is growing from a smaller base. But thats a personal thing. Big can get bigger, but there is more room for small to get big/bigger.

Believe "Graham Number" uses P/B in the calculation. My opinion, P/B has no bearing on insurance brokers because 65%+ of assets on balance sheet are Goodwill and Amortizable intangibles. The rest is cash, some of the cash is theirs and most of it belongs to their carrier partners or customers. Not trying to take away from the buying opportunity. Admittedly, I was early on the call to arms. I have bought at $96, $93, $78, $69, and $59. Obviously not very price sensitive. At first just saw, oh great I can own it, then as the price fell, in Mr. Buffett's words, the dog has "caught the car". I hope to buy more as cash becomes available, its a business I like and understand. As a student of insurance brokers and BRO specifically, its a business I know well and am confident in management. These are the tough times to hold any business, when the price is down significantly. Hard to predict market would hate on BRO so much. I was not buying early on any metrics or ratios. I just want to own BRO for a long long time (already owned and sold at a different time). I am pleased to have Mr. Market selling it in to me and others. Any buybacks at this point are very accretive considering Accession/RS was purchased using $5B+ on stock roughly at $100/share. Total consideration was $9.8B for $1.7B of revenue - call it 5.7X revenue. There's some hocus-pocus metrics math on what BRO actually paid using EBITDA or EV/EBITDA or multiple of EBITDA(easiest measure is the crudest - price / revenue). Remember, the 5.7X revenues was paid using stock valued at $100 to purchase roughly 50% of Accession/RS. If you take the current run rate pre-acquisition of call it $5.5B + $1.7B of Accession/RS you have $7B. That means the business is currently trading at 2.7X revenues ($18.78B Market cap). Buybacks are great uses of capital today (and paying down debt) so if you paid 5.7X using stock that trades at 2.7X, seems like an opportunity AS LONG AS everyone stays. When your stock is overvalued, use as currency. When its undervalued, buy it back. RISKS: BRO management has had to "re-tool" to manage the size of growing organization. One of my risks I see is management has not done enough work on "BRO culture works for 10K employees, can it work on 25K+?". There has been some cultural drift away from decentralization and more centralization which is gonna happen with a larger org. One of the things that always made/makes BRO special is the lack of "lets check with headquarters on this".

Its hard to "grow organically" when your revenue is tied to premiums that are being reduced due to softening market. If client paid $1M last year, and this year they pay $500K, revenue will be down 50% however you have a REALLY HAPPY CLIENT. Which is the goal right, happy clients? 50% reductions are happening for some clients. Fine with results. More than fine. Buybacks will be meaningful if there are no targets at their price.

Integration risk in the insurance broker biz is simple. You are not focusing on systems, products, offices, profitability, or new business - the 100% metric for if a deal works is if the people stay - specifically the producers or teams. Yes, AJG talks about the "Candy Store" which is all the new products AJG will share with AP however AP has some products, due to their size, that AJG likes and wants to use so there is some cross pollination going on. And yes the overlap of dual roles in accounting or admin will sort itself out and there will be some cost savings by merging 2 offices in the same city/town (could take a few years to let the office leases to tail out) but very simple - the AJG management team is focused on making sure the real producers at AP are happy and will stay on long term, if that's the case, then the "integration worked". All the computer stuff and accounting "synergies" will figure themselves out. In many cases, the brokers all use the same computer systems anyway (I am unfamiliar with computer management systems of AJG & AP) however they all are similar in their own way. Just understand this, AP and AJG were fiercely competing on deals and now they are no longer competing so in a large merger like this one, the clients are the ones that get frustrated because now there is 1 less broker to compete on their business so a "professional" shopper has to now go find a new fish broker to "bid" their business if they think having multiple brokers help get their premium/terms down (everyone has their opinions on that). Many many times the accounts are so complex the client couldnt even shop their deal if they wanted to. Not enough capacity in market in some cases to support multiple proposals.

London. Place will make your head spin for sure. You can win big or get smoked. Used to be a boys club. Still is but corporations have taken all the fun out of selling insurance. Part of the success is there is no UK CNBC on the floor interviewing brokers and UW's. They quietly make or lose money. When Mr. Buffett decides to take 5% of everything running through your syndicate, you know you are doing something right. Love love Loyds, I am heading over there in the Fall for some biz stuff. Its how business used to be, still stuck in time and may be up-ended with tech but who knows. Still a place you can get a risk placed if you know who to call and how to get the right people in the room. Recently upgraded to A+ which should have been for many years. IF you are researching, understand the concept of Central Committee or Central Fund. Thats key. Hint its kinda like FDIC insurance on banks.

Gonna defer to the GOAT and his opinions on this. Teed up to point where Mr. Buffett references the "General Agency System" which is parlance for MGA (Managing General Agent). Folks have been predicting the death of MGA's since the 1960's. NICO still TODAY, 60 years later, writes business through MGA's. NICO may have some pockets of direct biz or other lines in different channels - MGA's are a huge part of NICO's sauce. There are tons of reasons why MGA's provide value. See below

Greenberg/Chubb also fired a shot across the bow. Including a Substack found and Greenberg's letter referenced. #stayfrosty 2025-chubb-letter-to-shareholders-from-evan-greenberg.pdf Chubb's CEO Just Challenged the Entire MGA Model.pdf

Don't agree with sentiment of the announcement being "un-Berkshire-like". On the contrary, I see the announcement as more of Mr. Abel telling us "Hey, I am gonna doing this, I am gonna tell you now because I need you shareholders to trust me, cause I will will buy more in the future and will not announce a thing ", its a chiefs kiss. It was Mr. Abel telling the world "I am the boss now" in a kind way. Now he will return to Omaha to tend the flock. Mr. Buffett has taught Mr. Abel, probably bred into him at birth, to think long term. 1 announcement letting the world know "we are in the market" is very much Berkshire - Mr. Abel does not want to upset/spook long term A shareholders, my opinion. Yes, announcing you are a buyer hurts short term because you cant gather the shares you want quickly and in size. Private sales direct to Berkshire I believe is where the real size lies, open market is fine tho. This is a chess game. Mr. Buffett has had 60 years to think about how the movie goes on, he has thought about it alot. And his brain is highly geared towards playing at a level much more intensely than Mr. Market, and hope Mr. Abel inherits the bag of tricks under Mr. Buffett's desk. This change at home office is a coronation, this is not just oh, yeah, we are swapping out CEO's. This is a very personal thing - very much like passing the crown - I mean the GDP of Luxembourg is rivals Berkshire's earnings. Announce away I say, sit back and watch the world turn. This is a forever game, 2 months is nothing. This is a non-event.

I am gonna give this a go (hold my beer @gfp). All based on recent 10K dated January 31, 2026, latest proxy dated May 3rd, 2025, and Gift letter from Mr. Buffett dated November 10th, 2025. So math below does not account for Mr. Abel's purchases or latest buybacks. Only smoke me in the comments if my underlying thesis is wrong, not basic share counts outstanding pls. As of Jan 31, 2026 10 K shares outstanding 511,820 A kind out (A Share price @ $745,200) 1,389,605,139 B kind out (B Share price @ $497.20) Voting is 1 A share to 10,000 B share Monetary value is 1 A share to 1,500 B share (monetary doesn't mean anything in the voting conversation) Mr. Buffett owned 206,539 A kind as of latest proxy and converted 1,800 A kind into 2,700,000 B kind and then gave them away...leaving him with 204,559 of the A kind as of now. Meaning Mr. Buffett controls 39.9% of the Berkshire vote....between us and Mr. Buffett we control the firm, ha! so...do the math...overtime, if Mr. Buffett's A shares are 100% ALL CONVERTED to B shares based on todays A Shares outstanding (511,820) minus Mr. Buffett's remaining (204,559) only 307,261 A shares will remain. Post 100% convert of Mr. Buffett A shares to converted B shares adding to already outstanding B, Total B will amount to 1,696,443,639. Totals if 100% of Mr. Buffett's A shares are converted to B: 307,261 A kind out - representing 65% of vote 1,696,443,639 B kind out - representing 35% of vote Voting Totals 307,261 A kind out - 307,261 votes (1 for 1) 1,696,443,639 B kind out - 169,644 votes (10,000 for 1) TOTAL VOTES OF ALL - 476,905 total (adding the converted 10,000 to 1 B and 1 for 1 A) Monetary Values (based on $745,200 for A & $497.20 for B) 307,261 A kind out - $228.97B 1,696,443,639 B kind out - $843.47B LETS NOT BURY THE LEDE! Lets say you are Mr. McRich and you want to buy 15% of outstanding votes of Berkshire Hathaway after Mr. Buffett dies. To wrestle just 15% control using A shares only, you have to #1. find them & #2. spend $53.31B! And if those Big A's won't sell to Mr. McRich....then you have to settle for the Baby B kind...you'd spend $355.675B (715.358M B Shares) which would represent 15% voting thru B only. Obviously you could do a combination of both spending less for the same 15%. Congress moves faster than Berkshire shareholders, 15% is not enough to get anything done vs. the remaining 85% "dyed-in-the-wool" Berkshire faithful.....I COULD NOT resist the textile pun there. There's probably and easier way to explain this using better math functions but this is how my brain sees the voting situation at Berkshire post Mr. Buffett. Hope this assessment passes the COBF seal of approval.

RYAN trying to pass a law in Florida to make them the exclusive broker for State Insurance Company Citizens Clearing House....gotta love insurance brokers. https://www.insurancejournal.com/news/southeast/2026/02/09/857332.htm

you read it because its the intelligent thing to do. Its called the "Steelman" approach, a lesson taught to us by Mr. Munger. The practice of understanding an argument, usually the opposition, before sharing your thoughts allows for more fruit understanding of the underlying issue - its the pursuit of truth, not just opining because we are right and someone else is wrong. When you walk in their moccasins, you can bath in the idea. Its a way to invert the issue. Steelman is the opposite of strawman. I love doing it, it teaches me a lot. And to the author of the twitter post, yeah, most ideas are misplaced. Like the amount of leverage used in the comps. Mr. Buffett and Mr. Munger have told us time and time again, countless billions and billions have been left on the side of the road due to the lack of leverage at Berkshire - just so they could sleep at night. Not a terrible outcome, and something I appreciate very much. Leverage can do many things besides juice returns, it can lead to ruin just the same.