1997: Will insurance float continue growing at 20% per year?

AUDIENCE MEMBER: Gentlemen, I’m Marc Rabinov from Australia. I am a shareholder.

I had a question really related to our own businesses, and how they’re going, and where you’re looking to be in ten years’ time.

Perhaps I could start with the insurance float. It’s grown at 20 percent. Do you think that 20 percent growth rate will continue for the next ten years?

Do you think our stable businesses, which have been growing at, say, 5 or 7 percent will maintain that rate?

And do you think FlightSafety, which from the SEC filings has been growing at about 5 percent, do you think that’ll continue at that rate?

WARREN BUFFETT: Well, we’re glad to have you from Australia. I think we’ve got about 15 people here from Australia, so it — got a good representation.

I don’t think the insurance float can grow at 20 percent a year. That’s been helped by some acquisitions and things. I mean, it’s done way better, obviously, than we ever thought it would 30, almost 30 years ago when we made the deal with Jack Ringwalt.

I would say, though, that I think GEICO is going to do even better than we expected when we bought it. And we thought it was going to do awfully well then.

In Tony Nicely, you know, we have an absolutely outstanding manager of that business. And he is focused on it. He knows it. I think he went to work there when he was 18. And he’s been there 35 years or thereabouts. They don’t come any better. And he is absolutely zeroed in on the things that he should be zeroed in on, and he’s — the implementation gets better all the time.

I mentioned in the annual report that the unit growth of GEICO’s voluntary auto business — and we talk about voluntary because you get assigned risk-type things that lose you money, but the real business is the voluntary auto business — grew at 10 percent last year, which was the best growth rate in over two decades.

First four months of this year, it’s growing at about 16 percent. And 16 percent unit growth translates into about 20 percent a year premium growth.

So GEICO at present would give you some encouragement for at least that segment of the insurance float growing at a rate that’s sort of comparable to the past.

Insurance is going to be a very big business for us. And the float will grow, in my view, at a good rate. But I wouldn’t want to predict that good a rate.

Most of our other businesses, very good businesses. They don’t have 20 percent a year growth possibilities in them. They throw off lots of cash, which we can use to buy other things, which may turn out to be a better strategy than even having a single high-growth business.

FlightSafety, about six weeks ago or thereabouts, announced a major hookup in a joint venture with Boeing, as you may have noticed. And they’re a terrific partner, and it’ll be a great partnership.

That’s just for our — the training for our — for larger planes, primarily, I think, hundred-seat and up planes, although I think there may be a few Fokkers in there that are slightly smaller planes. But it’s basically the big commercial planes.

And the combination of FlightSafety and Boeing worldwide in training over the coming decades, I think, will be a very powerful combination. So we’ve got some very good businesses.

And I don’t see that movie that’s presented before — I sit out here like you and watch it. But I like the ending of it.

And the people we have out there, they’ve run businesses extremely well in the past. They get better results out of those businesses, frankly, than other people would, or that other people in the industry generally do. So I think they have good futures.

But they will throw off lots of cash in aggregate. And the tough job — we like to tell people it’s the tough job anyway — is that Charlie and I have to figure out where to put that cash to maintain higher — reasonable — growth rate.

AUDIENCE MEMBER: (Inaudible)

WARREN BUFFETT: Could you — I’m not sure that’s — could you turn that on, please, so that —

MARK RAVENHILL: I’m sorry to pin you down, but —

WARREN BUFFETT: That’s OK. You can pin me down.

AUDIENCE MEMBER: — would you guess that FlightSafety, then, is more likely to be in that 10 to 15 percent ballpark?

WARREN BUFFETT: Well, it’s hard to tell on numbers. I mean, certainly there’s going to be growth in pilot training around the world. But FlightSafety already has a significant portion of the corporate market, for example. So it would be hard to grow a lot faster in the corporate market, although I can hear Al grinding his teeth, you know, when I say that, because he plans to grow a lot faster than the market.

But the corporate market, we’ve got a significant percentage. Commercial market, there could be a lot of potential in. You know, it won’t come tomorrow or the next day. But, you know, ideally we would like to see people when they buy a 777 or 747 or something, buy a lifetime pilot training contract at that time.

So I wouldn’t want to stick a number on it, but I’ve got high hopes. And FlightSafety also announced recently a very major contract with the government through Raytheon. So it’s a company that’s got its sights set a lot higher than where it is now.

AUDIENCE MEMBER: And insurance, 15 percent? (Inaudible)

WARREN BUFFETT: Will you — you want tenths of a percent or will you — (Laughter)

We just don’t know. I mean, we didn’t know 25 — we didn’t — 30 years ago we didn’t know we would be in the insurance business.

I mean, Berkshire, we have no master plan. And Charlie and I did not sit down in 1960 — early ’65 — and say, “We’re going to do this and that,” and all that.

We’re going to do — we’re going to try and do sensible things as we go along. The more money we have, the harder it is to find sensible things.

But that’s the criteria. Insurance is certainly a major area of opportunity for us. It’s been a major opportunity.

We have — in certain fields we have a terrific advantage for the three reasons I laid out in the annual report. But I mean, we have capital strength, and a willingness to take on risk, and a speed of action, and a certainty of payment, that in aggregate no one matches.

Now, how much demand there is for that depends on circumstances in the business and how much supply there is at lower prices that we think don’t make sense is another question. But I think we’ll do OK in insurance over time.