Unlike some of the other companies, it does not have profitability as an exclusive motivation. Even at break-even, it generates significant float for Bershire to invest.
Can you explain?
Can you explain?
Even at break-even, an insurance company must keep a large amount of cash on hand to pay future claims. This is called float. Even though the company does not 'own' the money, it is free to invest it while it holds it. Buffet has used Geico and other insurers primarily as vehicles to invest their float.
Example: a CR of 92 means that for every dollar of premium, the company has to spend 92 cents, leaving 8 cents of profit. A CR of 102 means that the company has to spend $1.02 for every dollar taken in.
How much spent depends, in general, on operating expenses and claims paid. Limiting how much you spend can only get you so far; hence the rest of an insurers profit comes from investments.
(And where does the money for investing come from? Collected premiums!)