GEICO

GEICO (Government Employees Insurance Company) is Berkshire Hathaway's crown jewel insurance subsidiary and one of the most important contributors to the company's success.

History

GEICO was founded in 1936 to provide auto insurance to government employees. Its low-cost direct-to-consumer model gave it a structural advantage over traditional insurance companies that sold through agents.

Berkshire's Investment

Buffett first invested in GEICO in 1951 as a student of Benjamin Graham. Berkshire gradually increased its stake over the decades, completing the full acquisition in 1996.

Competitive Advantage

GEICO's economic moat comes from its cost structure:

• Direct sales model — No agent commissions
• Low overhead — Minimal physical infrastructure
• Scale advantages — As one of the largest auto insurers, GEICO benefits from economies of scale

The Float

GEICO generates enormous float—premiums collected before claims are paid. This float is invested by Berkshire, providing cost-free capital for other investments.

Conclusion

GEICO exemplifies the kind of business Buffett loves: a simple, understandable business with a durable competitive advantage, excellent management, and attractive economics.