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Originally Posted by Rich76_911s
I guess that explains why Warren Buffet holds one of the largest insurance co.'s in the country and is advertising like mad. Low profit margins, high risk, difficult to estimate free cash flow, and low dollars per unit of risk taken. That seems like a typical Warren Buffett investment.
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You've got the first two right, profit margins are low and the risk can be high--especially when trial lawyers get contracts rewritten after the fact.
As for cash flow, you are dead wrong. Warren Buffett's innovation was to tap "float". Float is the time lag between when premiums are collected and when claims are paid. Insurers traditionally put the money in conservative, short-term investments. Buffett realized that float essentially creates a quantity of cash that is always on hand. He decided to buy other companies with that money.
As for the adverstising, I think it's a complete and total waste of money in the volume and places that GEICO does it. Charging higher premiums to advertise in the way that they do is obscene.