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.

Funny you bring up GEICO float vs. the rest of the book's float. I used to discounted GEICO float for a long time and focused on the CAT/Super CAT re-insurance business. I was looking at size only, the large numbers were awesome. I was not keying in on consistency/growth and other factors with reference to float. True, the CAT/Super CAT float is larger but lumpy vs. GEICO float. GEICO float is basically "take to the bank" float with very little surprises (sans hurricane/quake/COVID-19 payback). My study of GEICO has led me to Progressive and what they are doing (really interesting). Seems like GEICO is back in the game, had to do a lot of things to get that "car back on the road", seems like Todd had to be the bad guy and now new guy gets to take all the credit for Todd's hard work. I have thought deeply about float in general. and my study is pretty simple, float is easy to find. all you have to do is mis-price risk and float will find you. the key to enduring float is pricing the risk "your way" and then whatever comes in, is good business and the deserved results will find you. There are classes of insurance business with loss ratios sub 30% or even sub 40% but you can not build an enduring business on that class, its too competitive. Too many people shooting at it to drive the price down. Those lines of business are also not that large, relatively small. Again, back to the size problem, if Berkshire wants to build a business, the TAM has to be big. That's why Berkshire loves the personal auto market, because its predictable and the TAM is super large.

"Chairman of the Board" is Mr. Buffett for now but not forever. Will watch that sentence in 10K for the years to come. Thanks for sharing

Mr. Buffett is intentionally converting the shares to B and gifting to foundations. I have thought deeply about this and ultimately if a fund or individual accumulate enough of Mr. Buffett's A shares, that would be bad for Berkshire shareholders writ large - that kind of power in the wrong hands could be dangerous to the culture of Berkshire. There are curious consequences I have considered when Mr. Buffett converts his A to B causing the amount of A shares outstanding to be reduced is control. The A shares really should trade at a premium to B...but that wont happen because of the quick buck arbs can make. The A Kind in size, real size, should trade at a premium...but the arb market will take care of anyone "trimming" their A's by buying the A and converting to B. So basically after Mr. Buffett converts his A to B it will be VERY VERY hard to accumulate enough shares (A or B) to "control" Berkshire. I have believed this was the intent for many years. The size of Berkshire has also helped this problem. And I think this is what Mr. Buffett was trying to figure out once his wife passed. From my reading, it seemed Mr. Buffett's attitude when Mrs. Buffett was alive, was pretty simple - accumulate a big pile and have Mrs. Buffett give it all away. The "monetary value" of the shares after a point meant very little to Mr. Buffett after a point, his concern IMO its about the control of Berkshire that he cares mostly about. Mr. Buffett does keep score with money, as Mr. Munger has said "Warren, you are the most extreme lover of the big pile". Mr. Buffett laughed and said "That's true".

Actually the folks on manufacturing line at Clayton DO CARE because the profitability of each home built is apart of their pay - its a bonus. And this goes to exactly what Mr. Abel is talking about, CULTURE. The culture of Clayton is such that employees are incentivized to NOT WASTE shareholder capital and do what they can to keep jobs under-budget. Felt compelled enough to mention because this is not always the case at subs inside BRK however the decentralized model is supposed to take care of little things like this, Mr. Buffett has done what he can to incentive managers of the subs to create schemes that celebrate profitability (winning) and when subs are losing money - managers lose as well. the comp plans for managers are fascinating at Berkshire.

Semper Augustus letter is out: https://static.fmgsuite.com/media/documents/7c13e1b2-1daa-4621-b926-1bff480a67f9.pdf?utm_source=substack&utm_medium=email

Can not say for sure on write down because I don't really track goodwill as an asset on balance sheet. There is no reason to track in an "elevator asset" business. An insurance broker does not trade on book value. Would they write it down? Maybe if its material enough, but "I guess" the write down would be equal to or less than the amount Howden ultimately pays BRO as a settlement for breaking the non-compete clause in the X-BRO employee agreement. So I see it as a wash.

I'm gonna give this a go but I may make a mistake cause I'm using accounting words that may/may not be used correctly. The capital is only "tied up" up when Buy Co buys Sell Co's book of business. Buy Co puts the asset on balance sheet as "goodwill". From then on, Buy Co uses Sell Co's revenue to expense payments to employees/producers to service, retain, and hopefully GROW through net new organic business. Buy Co uses Sell Co's revenue to pay for expenses of Sell Co. Buy Co's estimates on growth is where things can leave Earth and go to Mars. If Sell Co shrinks, bad for Buy Co. Write down of goodwill ensues. Recent news was Howden poaches X-Hays employees/producers books of business from BRO. 8 years ago-ish, BRO bought Hays in 2018 for $630M Cash ($605M at close + $25M earnout) / $100M Stock. BRO shareholders diluted slightly at time, BRO's goodwill increased by $456M and with liability of $605M (BRO pulled 100% on revolving bank line to close). Hays employees/producers got paid every time revenue was booked so its clean, in & out. Can not say for sure, however, assume BRO paid back their $630M in the 8 years ($79M per year) using Hays money. Anything after revolver was paid back is cake (forgetting dilution). 2026, Howden poaches Hays employees/producers from BRO. There's capital "I guess" tied up with those employees but not really. BRO says, and I agree, 1/3rd of clients will leave, 1/3rd will stay, and 1/3rd is a toss up/either side has a shot. BRO will get a check as a result of a "admit no wrong doing settlement. Where's the capital employed/invested? There is no capital tied up in customer relationships per say. Its all expense dollars to pay them to stay. And you could say "capital" is tied up in the newly trained producers hired, however thats all expensed and there is no "capital" tied up in a de novo producer. De novo producer makes there money back in 2 years or they are gone (different in each firm but 2 years, you usually can figure out if they can sell or not). So I'd say its net even or slightly net positive for de novo producers. Put another way, if there was a formula to grow de novo producers, Marsh, AON, Willis, BRO, and everyone else would just put money into growing de novo producers and would not buy other firms.

Question: Insurify & Tuio...what business are they in? Remember, people don't really understand insurance - normal folks actually hate insurance in general (they think its a scam). Investors really don't understand insurance. Understanding what position a business ranks or stands in the insurance ecosystem and how that business transacts is a very important part of understanding insurance as an industry. Lots of "investors" think businesses do things they do not. Nike is not a shoe manufacturing company, Nike is a marketing company who has a contract supply/manufacturing chain that gets their product (shoes) in the hands of both distribution and retail customers directly. McDonalds is not a burger business, McDonalds is a real estate company with a royalty on all burgers sold. Coca-Cola is not in the fizzy drink business, Coca-Cola is in the syrup business. From the reaction in the market, it would seem like Insurify & Tuio are the smartest guys in the room and the folks that have been in the insurance business for 150+ years know nothing about how to grow a business, create share holder value. That's fine. And I am open to fact that insurance, distribution and risk bearing, will change over time. The cream will rise to the top. Technology will democratize the insurance business. The Weak will get weaker. The Strong brokers/carriers will figure out how to utilize technology and win out.... ANSWER: Insurify & Tuio are in the insurance broker business. They are just brokers who are looking to take the transactional policy and make it easy. And, as Amazon taught us, Insurify & Tuio are "first to market" which can be an advantage. Insurify & Tuio are not gonna take the white meat, middle market+ accounts from competitors, they want your "easy to place home/auto". And they can have at it, its a rough/service intensive game. Reminds me of a poem by R. Kiplin, IF: If you can keep your head when all about you Are losing theirs and blaming it on you, If you can trust yourself when all men doubt you, But make allowance for their doubting too; If you can wait and not be tired by waiting, Or being lied about, don’t deal in lies, Or being hated, don’t give way to hating, And yet don’t look too good, nor talk too wise: If you can dream—and not make dreams your master; If you can think—and not make thoughts your aim; If you can meet with Triumph and Disaster And treat those two impostors just the same; If you can bear to hear the truth you’ve spoken Twisted by knaves to make a trap for fools, Or watch the things you gave your life to, broken, And stoop and build ’em up with worn-out tools: If you can make one heap of all your winnings And risk it on one turn of pitch-and-toss, And lose, and start again at your beginnings And never breathe a word about your loss; If you can force your heart and nerve and sinew To serve your turn long after they are gone, And so hold on when there is nothing in you Except the Will which says to them: ‘Hold on!’ If you can talk with crowds and keep your virtue, Or walk with Kings—nor lose the common touch, If neither foes nor loving friends can hurt you, If all men count with you, but none too much; If you can fill the unforgiving minute With sixty seconds’ worth of distance run, Yours is the Earth and everything that’s in it, And—which is more—you’ll be a Man, my son!

When in doubt, buy a basket. Similar to Mr. Buffett and his bets on Airlines/Japanese trading houses.

There are many arrangements where brokers can go to Wall Street or PE and get a pile of capital. That is "fast money" and know nothing of insurance. Broker can get ready A rated paper front for a fee using the pile of capital as a "collateral" and boom you have a little insurance company to compete against the big boys and girls. The customer just wants "A Rated Paper". Fronting carrier could be Trisura or State National (Markel) - there are others. Ultimately if the pile of money runs out, Trisura or State National will have to pay claims because according to language of policy, Trisura/State National are on hook. Broker has a new product to sell and Wall Street/PE are in the "risk bearing business". Pretty slick but Berkley is correct, that arrangement is in direct competition to the insurance carriers. Well run, it can print money, poorly run and it is a quagmire - theres a few that pop up and then lose their fronts, then come back with a new front - looks different because the paper is new but its the same shit box with a new name. I guess its kinda like Walmart getting bigger than Proctor & Gamble. For many years, P&G had the edge but then at some point, Walmart started telling P&G what they were and were not willing to pay. I guess that's the fear from carriers because, as we have discussed, the brokers wield a lot of power.