JAIN & GEICO

[thefatbaboon]

Was going through the letters and whilst I knew this already it really hit me hard:

 

That over the last 16 years Mr. Ajit Jain has increased Berkshire Reinsurance's Float 10 fold, from $4.3bn to $42.4bn.  And has made a cumulative underwriting profit of more than $6bn in the process.

 

For comparison, over the same period Geico increased Float from $3.4bn to $13.6bn.  And made a cumulative underwriting profit of more than $10bn in the process.

 

Jain has been paid about 2% per annum to accept a loan growing at a c.17% cagr.

 

Geico has been paid about 7% per annum to accept a loan growing at a c.9% cagr.

 

Looking at the data strung out like this over the last 16 years has rather blown my mind.

[Guest longinvestor]

Was going through the letters and whilst I knew this already it really hit me hard:

 

That over the last 16 years Mr. Ajit Jain has increased Berkshire Reinsurance's Float 10 fold, from $4.3bn to $42.4bn.  And has made a cumulative underwriting profit of more than $6bn in the process.

 

For comparison, over the same period Geico increased Float from $3.4bn to $13.6bn.  And made a cumulative underwriting profit of more than $10bn in the process.

 

Jain has been paid about 2% per annum to accept a loan growing at a c.17% cagr.

 

Geico has been paid about 7% per annum to accept a loan growing at a c.9% cagr.

 

Looking at the data strung out like this over the last 16 years has rather blown my mind.

 

Good analysis and insight. Buffett's praise for Jain is obviously well-founded. His line about sending the boat to Jain versus himself/Munger when marooned on an island captures how much Jain has contributed to BRK. I think Jain has a small staff with which he has accomplished all this. And Jain is not done, yet. I believe he is poised to defy the declining float belief as we speak.

[thefatbaboon]

From Charlie's letter,

 

"And, in the early decades of the Buffett era, common stocks within Berkshire's insurance subsidiaries greatly outperformed the index, exactly as Buffett expected. And, later, when both the large size of Berkshire's stockholdings and income tax considerations caused the index-beating part of returns to fade to insignificance (perhaps not forever), other and better advantage came.  Ajit Jain created out of nothing an immense reinsurance business that produced both a huge "float" and a large underwriting gain.  And all of GEICO came into Berkshire, followed by a quadrupling of GEICO's market share. And the rest of Berkshire's insurance operations hugely improved, largely by dint of reputational advantage, underwriting discipline, finding and staying within good niches, and recruiting and holding outstanding people.

 

...

 

Berkshire's marvelous outcome in insurance was not a natural result.  Ordinarily a casualty insurance business is a producer of mediocre results, even when very well managed.  And such results are of little use.  Berkshire's better outcome was so astoundingly large that I believe Buffett would now fail to recreate it if he returned to a small base while retaining his smarts and regaining his youth."

"