Subject: Small item: cost of float
I found it interesting that Mr Jain came right out with a number, noting in the context of a discussion of the last 20 years of underwriting results that the cost of float has been about -2.2%.

I believe that he was probably talking about pre-tax figures, which is what I also look at.

In my cyclical adjustment I am a bit more conservative, I pencil in -1.3%. I like to err on the side of caution when deciding what something is worth, and (partly for that reason) I include the deeper history back to the clean-up of the Gen Re stuff.

Average 2017-2024    -1.38%
Average 2006-2024    -2.57%
Average 1998-2024    -1.25%

My conservative assumption is that there will be some truly horribly expensive thing happen from time to time which will bring any ten- or twenty- year average underwriting profit down a lot. I prefer to figure that into what constitutes "normal", not think of it as a truly "non recurring" cost. Good years exist just top up the buffer for the next extreme outlier.

It is of course possible that I was too conservative, especially since Berkshire has backed away from the supercat business to a large extent. Mr Jain knows a lot more than I do about what a reasonable expectation would be.

2.2% is truly an amazing figure. If you consider the float to be evergreen, since float rises with inflation it's in effect an after-inflation yield, what could be compared to a perpetual TIPS yield.

And that's before one considers any return from investing that float. In fact, looked at that way, any investment return from a float-funded portfolio is inflation adjusted. It may only be in (for example) fixed rate long term bonds, but if the size of that portfolio is rising with inflation, then so is the total net yield from the bond portfolio. I never thought of it that way before. Any of the money invested in equities is, other things being equal, doubly inflation adjusted. Equity earnings are generally after-inflation earnings yields, and if the size of the portfolio holding them is also rising with inflation then the aggregate look-through earnings on a float-funded equity portfolio is doubly so.

Jim