Insurance - The Engine That Drives Fairfax

[Viking]

13 hours ago, patterson said:

The 1997 letter has a similar explanation of insurance float, as do the 2007 and 2014 letters among the other years you noted like 1998 discussed by Viking in the part 1 article above. I only know this because I happen to have a document with some highlighted passages.

 

"In those years when we have had an underwriting profit, such as the last five, our cost of float has been negative. In effect, we have been paid for holding money ... Since 1967, when we entered the insurance business, our float has grown at an annual compounded rate of 21.7%. Better yet, it has cost us nothing, and in fact has made us money. Therein lies an accounting irony: Though our float is shown on our balance sheet as a liability, it has had a value to Berkshire greater than an equal amount of net worth would have had." https://www.berkshirehathaway.com/letters/1997.html.

 

Looking over the 1997 letter again, I love the implications of Buffett's simple but profound statement that "[u]nless you understand this subject [insurance float and how to measure its cost], it will be impossible for you to make an informed judgment about Berkshire's intrinsic value." At the time Buffett wrote that, Berkshire's insurance float was something like 7 billion and (very roughly) equivalent to something like 15% of Berkshire's market cap at the time. Contrast that with today, where Fairfax's insurance float exceeds its market cap.

A general question for board members… Given how important float and investment leverage is to the business model of companies following in Buffett’s/Berkshire Hathaway’s footsteps is there a reason Markel doesn’t mention it? I have always found that peculiar. 

[dartmonkey]

On 7/2/2026 at 1:47 AM, Viking said:

@sholland and @patterson, thanks for the comments. I am rewriting the chapter on leverage (taking it from two to one).

 

What do you mean, taking leverage from two to one?  By my calculation, Fairfax invest an amount roughly equal to its equity in equity investments, and roughly twice its equity in fixed income investments. So I would have said thet have 3 to 1 leverage*, down from about 3.6 in 2021, but not 2 to 1 and certainly not 1 to 1. But perhaps you meant something else, and I don't see comments in this thread from sholland or patterson that might make it clear what you are referring to. 

 

*meaning they have $3 invested for every $1 of their own book value. But it depends how you define it. $1 invested for every $1 in book value, is that 1x leverage, or 0x leverage? Maybe the latter, in which case having 3 times as much investments as equity would be 2x leverage? 

Edited 4 hours ago by dartmonkey

[SafetyinNumbers]

17 minutes ago, dartmonkey said:

 

What do you mean, taking leverage from two to one?  By my calculation, Fairfax invest an amount roughly equal to its equity in equity investments, and roughly twice its equity in fixed income investments. So I would have said thet have 3 to 1 leverage*, down from about 3.6 in 2021, but not 2 to 1 and cert. But perhaps you meant something else, and I don't see comments in this thread from sholland or patterson that might make it clear what you are referring to. 

 

*meaning they have $3 invested for every $1 of their own book value. But it depends how you define it. $1 invested for every $1 in book value, is that 1x leverage, or 0x leverage? Maybe the latter, in which case having 3 times as much investments as equity would be 2x leverage? 

I assume he means chapters in his book on leverage. Taking the number of chapters from two to one. 

[dartmonkey]

1 hour ago, SafetyinNumbers said:

I assume he means chapters in his book on leverage. Taking the number of chapters from two to one. 

OK, I was barking up the wrong tree. One chapter on the 3:1 leverage then!

[djokovic1]

On 7/2/2026 at 6:50 AM, Viking said:

A general question for board members… Given how important float and investment leverage is to the business model of companies following in Buffett’s/Berkshire Hathaway’s footsteps is there a reason Markel doesn’t mention it? I have always found that peculiar. 

They have mentioned it but definitely less than BRK and FFH. The Q1 2010 earnings calls has specific commentary in the Q&A on float growth, leverage, and equity allocation and its worth reading.

Generally they have prioritised a higher allocation of equities in the book than higher investment leverage. They will do better than Fairfax in a zero interest rate environment all else equal but Fairfax is much better positioned in the current environment. 

 

Here are some of the instances using AI re their mention of float:

 

1. Status update presentation — "More float, more earnings power"

Andrew Crowley (President of Markel Ventures) explicitly tied float growth to earnings power compounding:

> "During the same timeframe, operating cash flows exceeded operating income by $5 billion, mostly due to the power of increasing insurance float. More float, more earnings power."

The accompanying investor presentation slide also frames growth in float as one of several distinct levers for increasing earnings per share over time, alongside Markel Ventures, public equities, and share repurchases. 

 

2. Q3 2023 earnings call — maximising investment return on float

Jeremy Noble (President of Insurance):

> "The insurance engine also continues to generate significant operating cash flows, and we have been intentional about taking the cash and maximizing the investment return on the float generated by our underwriting operations and attractive market yields."

 

 

3. Q1 2022 earnings call — the float spread as the core economic model

Richie Whitt (Co-CEO) articulated the fundamental spread model clearly:

> "We're making a spread of return between the positive yields on the bond portfolio and the negative cost of float that we get through underwriting profitability. And as long as we keep that spread a positive number, things add up to the good over time."