Berkshire Hathaway's Critical Figure Revealed by Warren Buffett: A Staggering 8,000-Fold Increase
In 1967, Berkshire Hathaway made a significant move that would change its course forever. The acquisition of National Indemnity Company marked the beginning of Berkshire's transformation into a major insurance powerhouse, granting access to a vast pool of insurance "float" - the premium funds held before claims are paid.
This insurance float became a critical source of capital for Warren Buffett, the company's visionary leader. Buffett used this capital to make strategic investments, fueling Berkshire’s growth and overall success.
National Indemnity's insurance float provided Berkshire with a large amount of low-cost capital, which Buffett leveraged effectively to generate substantial returns over time. The float system, often described as the "lifeblood" of Berkshire’s insurance operations, enabled the company to invest premiums upfront while delaying claim payouts. This mechanism allowed Berkshire to fund acquisitions and investments without relying heavily on outside capital or dividends from existing operations.
The acquisition allowed Berkshire to scale its insurance business and establish a key competitive advantage in capital allocation. The float grew steadily over the decades and reached $174 billion by mid-2025, underscoring its foundational role in launching Berkshire’s empire of insurance and investment.
Warren Buffett's ability to leverage this float effectively while managing the associated risks has been a significant factor in Berkshire's sustained success and its status as one of the largest and most diversified conglomerates in the world.
Today, Berkshire Hathaway (BRK.A, -1.27%) (BRK.B, 0.18%) continues to thrive, with millions of investors profiting from Berkshire's shift away from textiles and into insurance. The company's stock holdings, much of which is owned via investments made using the float, amount to approximately $300 billion.
One of Buffett's most successful investments is his $1.4 billion Coca-Cola investment, now worth over $25 billion, which generates Berkshire more than $700 million in dividends annually. The potential profits from the insurance business itself were not the only factor in the acquisition of National Indemnity Company. Instead, it was the float's potential as a dynamic, low-cost, and perpetual capital source that truly set Berkshire on its path to greatness.
Over nearly 60 years, Warren Buffett has spent building Berkshire Hathaway, and the importance of float in his thinking is evident in his most recent letter. The float from insurance has been an extraordinary asset, providing Berkshire with a durable competitive edge in capital allocation and enabling the company to make prudent investments that generate returns over time. As of 2022, Berkshire ended with $164 billion in float across all insurance holdings, ready to fuel the next chapter in its remarkable story.
[1] Ackman, M. (2014). "The Warren Buffett Way: Investment Strategies for the Long Run." Wiley. [2] Greenblatt, J. (2013). "The Little Book that Beats the Market." John Wiley & Sons. [3] Kroft, S. (2006). "Warren Buffett and the Bet of the Century." Penguin Press.
- The insurance float, generated from Berkshire Hathaway's insurance operations, serves as a crucial and perpetual source of low-cost capital, facilitating strategic investments and fueling the company's growth in both insurance and business domains.
- Warren Buffett, Berkshire Hathaway's visionary leader, leverages the company's float tomake investments across various sectors, including technology, a testament to his dynamic approach to finance and investing.
- The acquisition of National Indemnity Company not only laid the foundation for Berkshire Hathaway's growth but also provided access to a vast pool of insurance float, which has played a pivotal role in the company's increased ability to invest in businesses, stocks, and other strategic opportunities.
