Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day.

It's Monday, February 26th, and we are covering Buffett's annual shareholder letter.

I'm your host Michael,

and I'm joined by Matt Frankel.

Matt, good to have you.

Always good to be here.

Fantastic. So folks, a little background

before we get too far into the episode.

Warren Buffett is the chairman's CEO of Berkshire Hathaway,

which is at its corn insurance company.

Insurance companies make their money in essentially two ways. The first is by making what's called an underwriting profit.

And so this is, you know, when you pay your premiums, the insurer ends up paying out some percentage or perhaps all in some cases even more than

all of those premiums out in claims and especially when like a big natural

disaster happens that's the case so insurers make their money hopefully from their

perspective at least by paying out less than they're then they're taking in in

premiums that's what's called an underwriting profit and then the second

way that they make money is by investing that float.

And so that is the money that you've paid in and premiums that they haven't yet paid out.

They're usually able to invest that in some way, shape, or form, usually short- short term bonds and that's kind of how

another way that they're able to basically leverage that money and make a few bucks here

and there which particularly if they're not making an underwriting profit can kind of make the bridge to them surviving and hopefully prospering.

Of course, Berkshire Hathway is a wee bit more developed than most insurance companies.

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