1995: Is the dip GEICO's ROE temporary?

AUDIENCE MEMBER: Yes. I’m Samuel Park (PH) from Tulsa, Oklahoma.

My question is regarding GEICO. I noticed that, for the last five years, their return on equity has come down every year. Is this something that signifies change of a business, or just temporary things?

WARREN BUFFETT: Question is about GEICO’s return on equity?

AUDIENCE MEMBER: Yes.

WARREN BUFFETT: Yes. Well, it’s true, it has come down to some extent. The — GEICO’s growth is, more or less, a function of, basically — I mean there’s a natural rate of growth there.

And the growth in capital has been greater than the growth rate in premium volume and in invested assets, so that achieving the same success on underwriting and achieving the same success on investments will produce a lower return on capital unless they buy in stock, which they have done fairly significantly. But that’s limited by availability, too, but —

It’s a very good business. But it’s not a business where, if you double the capital, you can double the earnings easily.

Charlie?

CHARLIE MUNGER: I have nothing to add.