How Insurance Companies Turn Their Premiums Into Billions in Profit
Written by Reuben Gregg Brewer for The Motley Fool -> Much is made of Berkshire Hathaway's investments, but the real story behind the company's success is the "float." Auto insurance giant Progressive generated nearly $1 billion from its float in the first quarter of 2026 alone
Much is made of Berkshire Hathaway's investments, but the real story behind the company's success is the "float."
Auto insurance giant Progressive generated nearly $1 billion from its float in the first quarter of 2026 alone.
The ability to invest premiums until they are needed to pay claims can be hugely profitable for insurance companies.
Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) is one of the most recognized names on Wall Street. That notoriety is based on former CEO Warren Buffett's long history of success as an investor. However, what allowed him to invest is often overlooked. The key ingredient was the so-called "float." And it isn't just Berkshire Hathaway that has benefited from the float, which is the powerful tool that allows insurance companies to generate billions in profits for shareholders. Here's what you need to know.
What, exactly, is the float? An insurance company like Progressive (NYSE: PGR) collects money from its customers as they pay for their insurance coverage. But Progressive doesn't actually pay out any money until a claim is filed. Not every customer files a claim, so Progressive keeps some of the premiums it collects. However, there will always be some number of claims, so Progressive, like all insurers, needs to have money available to pay them. The float is the money an insurance company like Progressive has collected and is holding to pay claims.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Insurance companies don't put that money in a safe and let it sit idle. They invest it. Some companies are very conservative with the cash, largely investing in bonds to generate income. Others, like Berkshire Hathaway, have taken a more aggressive approach, investing in stocks and, in the case of Berkshire Hathaway, buying entire companies.
Warren Buffett's insight was that he could use float in ways others didn't. His investment approach made him a household name and a Wall Street icon, but it was the float that made it all possible. There are other companies that mimic the Berkshire Hathaway model, including Markel Group (NYSE: MKL) and Brookfield Corporation (NYSE: BN) , which is currently shifting its business to become what it describes as an investment-led insurance company.
