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Strategies & Market Trends : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: Shane M who wrote (2756)	1/23/2001 1:53:46 AM
From: Moominoid	Respond to of 4690

Both you and Jacques make sense to me. Some other people's discussions of float don't make sense to me. David

To: Shane M who wrote (2756)	1/23/2001 3:39:38 PM
From: Jacques Newey	Respond to of 4690

Shane, sorry for my previous long rant. Typing it out helped me organize the random thoughts in my mind. Thanks for bearing with me on that. I promise not to do that again. Re:"given equal ability to invest the float the company with a 92 combined ratio makes the most money. Pretty straight forward." Right, and with BRK you get the BEST overall combined ratios, the BEST Investor and the MOST TAX EFFICIENT management(by far) of that float. Re:"low combined ratios are an operational advantage, nothing specific to float." No, cost of float and combined ratios are joined at the hip in my mind. Re:"I can see Berkshire having a specific long term advantage operationally ... in the supercat insurance." Me too. Another amazing advantage to BRK's supercat business is Ajit Jain. Buffett says Ajit is an underwriting genius...probably the best in the business. I sure hope that Buffett pays him a lot. He has singlehandedly brought in truckloads of high quality supercat float over the years. Warren unloads the cash and stores it in BRK's enormous cash silos. A lot of that cash never goes back to the policy holders. As you say, every once in a while when a disaster hits Buffett has to pull the lever and release a very, very big pile of that cash into a policy holder's truck. That exercise is not fun, but it doesn't happen very often, thanks to Ajit's skill in underwriting. Re:"Again, not saying that Geico won't make money here, but super-normal profits should be much more difficult in the long run." You obviously know more about the auto insurance business than I do (I checked your profile :). All I know is that Buffett believes that GEICO has a VERY SIGNIFICANT competitive advantage (moat). Not as good a moat as in the supercat business, but a moat nonetheless. Buffett elaborates more on that in the 99 letter to shareholders. With GEICO I think he is willing to allow profits to erode a bit, in the short term, to gain market share and put pressure on the competition (sorry about that Shane). We'll have to see how that all shakes out. Saw in 3rd Qtr reporet that he was cutting back on GEICO's advertising as was not bringing in new business as expected. Some short term conceernt htere. Still, Warren has been around the auto insurance business, through his association with GEICO, since well before you (and I, and my dad?)were born. I would guess he knows the business pretty well. I did it again. End of rant! Thanks for your thought provoking comments. Best regards, Jacques