If inflation rises moderately, insurance float could be more valuable, and negative interest rates for holding BRK cashola in places like the EU, go away.
Thoughts?
If that’s your assumption then those long tail environmental (for instance) liability claims (the type that produce the term float) may very well be restricted within the policy max limits but still overall go up 30% from the actuarial predictions. Better be raising premiums on the new stuff written, keeping in mind that some underwriters won’t (“It’s only 5 years till I retire so I can steal my competitors business and reserve with a free spirit”…that is the Jack Welch explode-for-20-years model). Quite a few variables and more complex than just saying it is likely your bill/note/bond interest goes up thus all is good as far as the insurance business.
General Electric wrote all kinds of insurance with predictions for claims, some got snared up with rediculous inflation such as long term care. It took 20 years to figure it all out and it was the number of claims that exceeded prediction (that still fell within max limits).
GE’s Employers Re also under-reserved in the late 1990’s. Both Berkshire (and it got magnified with the already struggling while trying-to-be-honest General Re acquisition) and AIG (the future thief!) were showing terrible numbers while Employers Re was making sure Jack’s one billion stock option plan was in the black. Jack left; Emp Re hit depth; shareholders wept. Largest one time loss in insurance history as the door slapped Belch in the ass. Of course 100 other under-reserved things came along in all GE’s financial operations for the next 20.
The insurance biz is very complicated. One of the reasons why if I were a younger person, given Buffett and Jain’s age, I would NEVER have more than 10% of my money in Berkshire long term.
Inflation almost assures some excitement in the long tail (float) insurance sector. For now, we at Berkshire are fine of course.
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