2018: Why didn't GEICO underwrite profitably in Q4?

GARY RANSOM: My question’s on GEICO. Last year, you promised growth and delivered. But along the way, the combined ratio was moving up, and it was the first time it was over a hundred in about 15 years.

Granted, some of that was catastrophes. But even excluding catastrophes, there was something going on in the loss trends that caused you to slow down that growth, at least at the — as we got to the latter part of the year.

And I wondered if you could tell us what was going on. And I did look this morning, too, so it looked like the first quarter has settled down a little bit, but I’d still like to know about the fourth quarter.

WARREN BUFFETT: Yeah, sure. It — the only thing I differ with the question on slightly — when you say it caused us to slow down — we didn’t want to slow down the growth. I mean, you’re looking at a guy here that has never wanted to slow down the growth of GEICO. The growth did slow down, but it wasn’t because we wanted it to.

Our prices that led to the underwriting loss — we actually — we’d have been slightly in the black without the catastrophes.

But, you know, if we hadn’t have paid our light bills, we might have been in the black, too. I mean, this “except for” stuff doesn’t mean much in insurance as far as I’m concerned.

The — if you’ll look at the first quarter — our margins were around 7 percent, which is actually a little more than we aimed for. And I received the unaudited — I mean, the preliminary — figures for April, and they’re similar.

So, the underwriting gain is — or margins — are perfectly satisfactory now. And we’d love to get all the growth we can. And we will gain market share this year. And we gained market share — Tony — when Tony [Nicely] took over the place, it was — in 1993 — it was two and a very small fraction percent. And it’ll be 13 percent of the — you know — 13 percent of the households in the country now. And we will keep gaining share. We will keep writing profitably — most of the time.

And every now and then, our rates will be slightly — modestly inaccurate — inadequate, I should say. And/or we’ll have, maybe, some big losses on hurricanes or something of the sort, or we’ll have a [Hurricane] Sandy in New York.

The — but GEICO is a jewel. And it’s — you know, it’s really a — we’ve got some others we feel awfully close to similarly about, but it’s an incredible company. It has a culture all of its own. It’s saving its customers probably 4 or $5 billion a year against which they would — against what they would otherwise be paying, based on the average in auto insurance. And it will be profitable on underwriting a very high percentage of the year. It contributed another $2 billion to float last year.

It is a terrific company. And like I say, the first four months are dramatically better.

Now, there’s some seasonal in auto insurance. So, the first quarter is usually the best of the four quarters. But it’s not a dramatic seasonal. So, I think when you read the 10-Q — and you can take my word for April — I think GEICO is on a good profit track as well as a good growth track. And the more it grows, the better I like it.

Charlie?

CHARLIE MUNGER: Well, I think you’ve said it perfectly.

WARREN BUFFETT: Huh.

CHARLIE MUNGER: It was never very bad, and it’s better now. (Buffett laughs)