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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 214655  
Subject: Re: Two Column/Rationalwalk Date: 10/10/2012 8:04 AM
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Even so, $1.5 bn pre-tax I think is a closer to the truth than zero (Buffett's implicit number)....

For anybody interested in the cost of float trend

        Underwriting
Year pretax P/L Float Cost of float
1999 -1394 25.30 5.5% (gen re cleanup era)
2000 -1585 27.87 5.7% (gen re cleanup era)
2001 -4067 35.51 11.5% (gen re cleanup era and Sept 11 attacks)
2002 -510 41.22 1.2% ("no megacatastrophe...a downward adjustment is appropriate")
2003 1700 44.22 -3.8%
2004 1551 46.09 -3.4%
2005 53 49.29 -0.1% (katrina)
2006 3838 50.88 -7.5%
2007 3374 58.69 -5.7%
2008 2792 58.49 -4.8%
2009 1559 61.91 -2.5%
2010 2013 65.83 -3.1%
2011 248 70.57 -0.4% (tsunami, NZ earthquakes)

Conservative average cost of float 1999-2011 -0.57% (underwriting profit +0.57%)
Optimistic average cost of float 2003-2011 -3.48% (underwriting profit +3.48%)

A rather arbitrary geometric mean of those two figures is -1.41% which gives a nice
round billion a year in pretax underwriting profit based on the current amount of float.
That's what I pencil in when I do cyclical adjustments.

Jim
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