The $177.5 Billion Liability That Helped Build Berkshire

The $177.5 Billion Liability That Helped Build Berkshire **Berkshire paid $8.6 million for two insurers in 1967. The deal came with money Buffett could invest but did not own. That pool is now $177.5 billion.** The company bought National Indemnity and National Fire & Marine from Omaha businessman Jack Ringwalt. Closing day began with a delay. Ringwalt had been driving around looking for a parking meter with unused time. Buffett took the thrift as a good sign. In his 2006 shareholder letter, Buffett said the two insurers carried $17 million of something Berkshire could invest but did not own. That something was insurance float. By June 30, 2026, Berkshire's float had reached approximately $177.5 billion. It stood at $176 billion at the end of 2025, $171 billion one year earlier, and $88 billion in 2015. The pool had more than doubled since the end of 2015. Here is the catch: Berkshire does not own that $177.5 billion free and clear. The money exists because the company promised future coverage and claim payments. So how did a liability help build one of the world's largest companies? # The Liability That Acts Like Capital An insurer collects a premium today and may pay the related claim months or years later. The money held during that gap is called float. The insurer can invest it until claims and other costs come due. Float is not automatically free. Its cost depends on whether the insurer collected enough premium to cover claims and expenses. The combined ratio measures those claims and expenses against earned premiums. A ratio below 100% means underwriting produced a profit before investment income. Berkshire reported underwriting gains in 2023, 2024, and 2025. Its average cost of float was negative in each year. In plain English, Berkshire was paid to hold money it could invest. That is the real miracle. Buffett did not find a loan nobody had to repay. He built an insurance operation that often earned a profit before investing the temporary funds. Buffett called property-and-casualty insurance the engine behind Berkshire's growth since 1967. These policies cover damaged property and legal liability. The engine was not float alone. It was float paired with disciplined underwriting. **Float is delayed money. Underwriting decides the funding cost.** # The First CEO Handoff in Six Decades Greg Abel became Berkshire's chief executive on January 1, 2026. Warren Buffett remains chairman and, according to Abel's first shareholder letter, still works from the office five days a week. That makes the transition less abrupt than the headline suggests. Ajit Jain's insurance organization also remains in place. Berkshire is not one new man replacing one old man with a checkbook. It is an operating system built over six decades. Still, the final responsibility changed hands. Abel's letter says the chief executive also serves as Berkshire's chief risk officer. That matters because an insurer often sets today's price for a cost nobody will know for years. The easiest way to grow is to charge too little and let the next chief executive discover the mistake. The real test of the Abel era is not whether he finds the next great stock tomorrow. It is whether Berkshire keeps walking away when insurance prices stop paying for the risk. That test has already arrived. # The Trap Starts With Excellent Numbers Insurance broker Aon plc (NYSE: $AON) now estimates global reinsurance capital at a record $800 billion. Reinsurance is insurance purchased by insurers to spread large losses. About $144.5 billion now comes from outside investors. That includes catastrophe bonds, which pay investors interest in exchange for taking specified disaster risk. More capital means more firms competing to insure the same risks. That competition pushes prices down and gives buyers better terms. Aon's latest snapshot found double-digit price reductions across many property placements in 2026, especially for U.S. risks. Casualty pricing was more stable, though buyers were gaining better terms. This is called a soft market: insurers have ample capital, so price and contract terms move in the buyer's favor. The strange part is that the soft market arrived beside great reported results. Across a sample of 19 global reinsurers, Aon reported an 85.4% combined ratio for the first half of 2026. That was down from 94.8% one year earlier. Those results were helped by the lowest first-half insured catastrophe losses since 2019. Premiums written at stronger past prices were also still flowing through current results. That is why insurance cycles fool investors. The weakest policies are often written while current earnings look safest. **The premium arrives today. The bill for a bad policy may arrive years later.** # The Receipt Is A Shrinking Top Line I went looking for companies willing to lose business before losing underwriting discipline. The cleanest receipt came from Kinsale Capital Group, Inc. (NYSE: KNSL). Kinsale focuses on excess-and-surplus insurance, or E&S. That market covers unusual risks that standard insurers often reject and gives underwriters more freedom to set terms. In the second quarter, Kinsale's gross written premiums fell 5.0%. This measure is the value of policies written before subtracting reinsurance. Commercial-property premiums fell 32.7% as competition increased. Most growth investors would stop at those numbers. Insurance investors should keep reading. Kinsale still posted a 75.5% combined ratio and $105.4 million of underwriting income. Underwriting income is policy profit before investment income. Kinsale accepted less business rather than cut price enough to protect the top line. The result was not perfect proof. Lower estimates for older claims and fewer catastrophe losses helped. Its expense ratio—operating costs divided by premiums—also rose to 21.7% from 20.7%. Still, the behavior matters. Management let revenue opportunity walk away before margin did. Chubb Limited (NYSE: CB) made the same choice at a much larger scale. Chubb operates in 54 countries and territories. Its second-quarter North American major-accounts and specialty premiums fell 9.0% because of underwriting actions on property business. Yet Chubb's overall property-and-casualty combined ratio improved to 83.8%. Its current-year ratio excluding catastrophe losses was 82.2%. That second figure isolates claims from policies written this year and removes catastrophe losses. W. R. Berkley Corporation (NYSE: WRB) kept growing, but it also kept the math profitable. Second-quarter gross premiums reached a record $4.14 billion. The consolidated combined ratio was 90.0%. Operating return on equity reached 20.5%. That measure compares operating profit with beginning shareholder capital. Three companies took different paths. Kinsale shrank a pressured line sharply, Chubb cut selected large accounts, and Berkley grew while keeping underwriting profitable. That is the comparison I care about in a soft market. # Stock Winners—For Now **Kinsale Capital Group, Inc. (NYSE: KNSL):** Friday's $373.17 close was 23.1% below its $485.00 52-week high. The pullback gives investors a better entry into a rare underwriting record. Risk: gross written premiums are already falling, and favorable reserve development still helped the latest ratio. **Chubb Limited (NYSE: CB):** Friday's $341.59 close was 6.6% below its $365.91 52-week high. Chubb combines global reach with evidence that management will shrink underpriced property business. Risk: casualty claims can develop for years, while a benign catastrophe period can make current margins look stronger than the next cycle. **W. R. Berkley Corporation (NYSE: WRB):** Friday's $69.14 close was about 11% below the 52-week high shown on the company's quote page. Founder William R. Berkley died on June 9 at age 80. His son, W. Robert Berkley Jr., has served as chief executive since 2015 and is now chairman, chief executive, and president. A July filing showed that the estate and related family entities reported ownership of 25.67% of the shares. Risk: succession appears operationally settled, but concentrated family ownership and future share sales still deserve attention. # A Benchmark With More to Prove **Berkshire Hathaway Inc. (NYSE: BRK.B):** Berkshire remains the source code for this entire strategy. Its property-and-casualty businesses posted an 87.1% combined ratio in 2025, versus a five-year average of 90.7%. Buffett remains chairman, and Jain's insurance team remains in place. The question is not whether Berkshire suddenly forgot insurance. The question is whether Abel can deploy a much larger pool of capital while preserving per-share returns. Risk to the cautious view: Berkshire can afford to wait. It has no need to chase premium volume, force an acquisition, or satisfy a quarterly growth target. # What We Are Doing We are not valuing float dollar for dollar as if it were cash belonging to shareholders. Float is a liability, and adding it to book value creates a misleading valuation shortcut. We care about three things: the amount of float, how long the insurer can hold it, and what underwriting cost comes with it. In a soft market, slower premium growth can be a positive signal. We favor companies willing to shrink before writing business below a fair price. We also separate the reported combined ratio from the current-year result. Reserve releases from older claims and unusually light catastrophe losses can improve today's number without improving today's pricing. For each insurer, we watch pricing, current-year loss trends, expense control, reserve changes, and management's willingness to walk away. We believe P&C insurance companies replace bonds in a portfolio. When you buy stock in an insurer you are basically getting a portfolio of bonds, but unlike a bond fund, which tends to benchmark against an index, the insurer is managing duration to try to make money. I’ll give you an example of the power of this. Past performance doesn’t predict future results of course, but 2022 was a year when bonds and stocks went down at the same time. According to Bloomberg the S&P 500 was down 18.12%, the AGG ETF (Barclays Aggregate Bond Index) was down 13.05% (this includes dividends). [$WRB ( ▲ 0.2% )](https://stocktwits.com/symbol/WRB) was up 33.88%. We all remember 2008, the S&P 500 was down 37%. [$WRB ( ▲ 0.2% )](https://stocktwits.com/symbol/WRB) was up 4.91%. Also according to Bloomberg the correlation between [$WRB ( ▲ 0.2% )](https://stocktwits.com/symbol/WRB) the S&P 500 and [$AGG ( ▼ 0.65% )](https://stocktwits.com/symbol/AGG) from 9/1/2021 through 9/27/26. (See image.) We will be launching our own P&C ETF next week in conjunction with Porter Stansberry. # What Changes My Mind **On Berkshire's float:** I get more cautious if Berkshire reports a positive average cost of float for two consecutive years. One weak year can reflect a large catastrophe. Two would suggest the funding advantage is becoming less reliable. **On the soft market:** I get more cautious if Aon's reinsurer combined ratio rises above 95% for two consecutive half-year readings while pricing continues to fall. That combination would show the profit cushion narrowing before the market has tightened. **On Kinsale:** I get more cautious if its combined ratio rises above 85% for two straight quarters while gross written premiums still decline. I also watch whether the expense ratio moves above 23% for two quarters. That would suggest its low-cost edge is weakening. **On Chubb and Berkley:** I get more cautious if Chubb's current-year property-and-casualty combined ratio excluding catastrophes exceeds 90% for two quarters. For Berkley, the warning level is a consolidated combined ratio above 95% for two quarters. Either result would show softer pricing reaching the underwriting engine. # Investment Implications * Float is not free cash. It is temporary funding tied to future insurance obligations. * An underwriting profit can make that funding cost negative, which is the real Berkshire advantage. * Falling premium volume can be bullish when it proves an insurer refused underpriced risk. * Soft markets punish weak discipline with a delay, often after current profits look strongest. # The Bottom Line On March 9, 1967, Berkshire paid $8.6 million for two small insurers. The deal brought future claims, cash collected today, and a management problem that never disappears: what price is enough for a cost that may remain hidden for years? By June 30, 2026, Berkshire's float had reached approximately $177.5 billion. Berkshire did not build its fortune because that money never had to be repaid. It built its fortune because disciplined underwriting often paid Berkshire while it waited to pay the claims. **The liability helped build the fortune. The discipline kept its cost low.** That is the H.E.A.T. Formula at work. The Edge is measuring the cost of float instead of celebrating its size. The Hedge is refusing insurers that chase volume as prices fall. The Asymmetry belongs to firms that can shrink today and compound tomorrow. The Theme is simple: in insurance, the best growth story may begin when management says no.