1996: How will GEICO affect Berkshire's float?

AUDIENCE MEMBER: My name’s Alan Parsow from Omaha.

Berkshire has increased the rate of growth in its insurance float in excess of 20 percent a year since 1967.

In regards to GEICO, its rate of growth, what is its historic rate of growth been in its insurance float? And what impact will it have on the rate of growth in the overall Berkshire insurance float?

WARREN BUFFETT: Well, I would say that GEICO is a huge plus to Berkshire. Now, we owned 50 percent of it before. I mean, we’ve had a — we’ve benefitted from our GEICO investment in a big way, ever since 1976. So, it’s not entirely a new benefit that’s coming in.

We paid a good price for GEICO, but it is a terrific company. It has outstanding management. It has a low-cost method of distribution, which is very difficult for people to — I mean, everybody wants to have that. But they — very few come close to it.

The management is focused on bringing costs down even further and widening that competitive moat.

GEICO — I personally think that, just from what I see, that GEICO — I would think GEICO’s growth rate is likely to be greater, at least, in the future, that I can see, over where it has been in the past. But it’s been perfectly satisfactory in the past.

I think there are some advantages to it being part of Berkshire, in that there are costs attached to bringing new business on the books. And we care not at all about reported quarterly earnings.

GEICO was relatively insensitive to those before. And that’s a compliment when I say that. But they had some more pressure on them in respect to reported earnings than they will have, as part of Berkshire.

And I think there’s some really big opportunities, in terms of what can be done with GEICO as part of Berkshire.

So, I think five years from now, you’ll be very happy with the fact that we own a hundred percent of GEICO.

And I think you will see that as marvelous a company as GEICO was independently — as an independent company — it will flourish maybe even a bit more as being part of Berkshire.

Not because we bring anything to the party. I mean, the management will continue to run it autonomously. But there’s — there are some advantages for it in being part of a larger enterprise.