When Warren Buffett began acquiring insurance companies in the late 1960s, it was not because he believed insurance was a particularly elegant business. The margins were thin. The competition was disciplined. The regulatory oversight was constant. On paper, it looked ordinary.
What made the move consequential was not the industry but the mechanics.
Insurance premiums arrive before claims are paid. That gap creates float, a pool of cash that belongs to policyholders in theory but sits under corporate control in practice. Most insurers treated float conservatively, investing it in short term instruments and accepting modest returns. Buffett saw something else. He saw a form of capital that did not behave like income, did not trigger immediate taxation, and did not demand scheduled repayment.
At a time when most executives were focused on quarterly earnings, Buffett was focused on sequence. He wanted money that arrived early, stayed put, and could be deployed patiently.
By the early 1970s, Berkshire Hathaway was still a struggling textile company searching for direction. The insurance acquisitions did not change the company’s public identity overnight, but internally they altered how decisions were made. Capital stopped being scarce. It stopped being reactive. It became deliberate.
The float did not show up as profit in the way investors were trained to recognize. It sat quietly on the balance sheet, misunderstood by many and dismissed by some. That misunderstanding was the opening.
Buffett did not need leverage in the conventional sense. He did not need banks to approve terms or markets to cooperate on timing. The float was always there, renewing itself annually as long as underwriting remained disciplined. The constraint was behavioral rather than financial. Lose underwriting discipline and the advantage disappeared.
That constraint shaped culture.
Berkshire avoided the temptation to chase volume. It walked away from business when pricing deteriorated. It accepted periods of low growth in exchange for structural stability. These were not popular decisions in an industry that often measured success by premium volume rather than underwriting profit.
Over time, the float grew. So did Buffett’s reputation, although the two were rarely discussed together in public coverage. Analysts preferred to debate stock selections. Journalists focused on the folksy persona. The real engine was mechanical.
Float allowed Berkshire to acquire entire businesses without selling shares or triggering taxable events. It allowed capital gains to compound untaxed inside operating companies. It allowed patience to become an asset rather than a liability.
Taxes mattered here, but not in the way they are usually framed. Buffett did not build elaborate avoidance schemes. He structured time. Deferred taxation is not elimination, but deferral changes outcomes when the holding period stretches across decades.
By the 1980s, Berkshire’s structure had become difficult to copy. Insurance competitors could not replicate the investment approach without compromising underwriting. Traditional conglomerates lacked the float. Hedge funds lacked permanence. Each group was missing a piece.
The advantage did not announce itself. It accumulated.
In shareholder letters, Buffett explained the concept plainly, almost defensively, as if anticipating skepticism. Float was described as a loan that might even pay him for the privilege of holding it. That description was accurate but incomplete. The real value was not cheap capital. It was optionality.
Optionality meant never being forced to act. It meant waiting through market dislocations without selling. It meant writing large checks when others were constrained by balance sheets or sentiment.
During market downturns, Berkshire was often one of the few buyers with certainty. The funds were already there. No roadshow was required. No tax event was triggered to raise cash. Decisions could be made privately and executed quietly.
This approach required restraint. It required accepting years when performance looked unremarkable. It required resisting financial engineering that might flatter short term results. Buffett accepted those tradeoffs because the structure rewarded time.
The public often misread this as temperament alone. Patience, discipline, long sightedness. Those traits mattered, but they were enabled by architecture. Without float, patience would have been far more expensive.
In later years, as Berkshire grew too large to deploy capital easily, the same structure continued to shape behavior. The company did not pivot to riskier strategies to maintain growth. It accepted scale as a constraint and adjusted expectations accordingly.
The insurance operations were occasionally criticized when catastrophe years produced losses. Those critiques missed the point. Over full cycles, the float was stable. Over decades, it was transformative.
What Buffett had done, early and without spectacle, was reposition capital so that it worked before being taxed, before being claimed, and before being demanded back. That choice, more than any individual investment, defined Berkshire Hathaway.
For entrepreneurs and executives studying outcomes rather than process, the lesson is easy to miss. The headlines celebrate returns. The interviews celebrate temperament. The balance sheet tells a quieter story about timing, structure, and control.
Buffett never framed this as a playbook. He simply built one and let time validate it.