The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

by William N. Thorndike Jr.

Insurance is Berkshire’s most important business by a wide margin and the critical foundation of its extraordinary growth. Buffett developed a distinctive approach to the insurance business, which bears interesting similarities to his broader approach to management and capital allocation. When Buffett acquired National Indemnity in 1967, he was among the first to recognize the leverage inherent in insurance companies with the ability to generate low-cost float. The acquisition was, in his words, a “watershed” for Berkshire. As he explains, “Float is money we hold but don’t own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money.”