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Your post makes me think of an alternative way of valuing Berkshire that has not been discussed here, as far as I can recall. Clearly, float is valuable, and profitable underwriting is also valuable, so excluding underwriting profit, and conservatively ignoring the value of float, is going to significantly undervalue a company which is still primarily an insurance company.

But say that we divided Berkshire differently, not into op companies and investments, but rather, op companies, insurance companies and remaining investments. In other words, we find comparable insurance companies, like Progressive as a comparable for GEICO, or Munich Re as a comparable for GenRe and Berkshire Re; that already takes care of most of the insurance company value. Then we need some way of assessing how much of Berkshire's investments are needed for those insurance companies. So if, for instance, Progressive is worth $13 billion (a little over 2x book), with its $15.5 bn in revenue, then at first blush, GEICO, with its $15.4 bn in revenue, is also worth about $13 billion. We might adjust GEICO down a bit, since Progressive's profits seem to be a bit higher ($1 billion a year), as opposed to GEICO's (avg of about $800 mn in the last 3 years), so let's say $12 billion for GEICO.

Same thing for GenRe and BHRG.

But then we would have to figure out how much of Berkshire's investments are to be assigned to these insurance operations, and how much are just part of Berkshire Hathaway 'free and clear' of their insurance operations? For instance, Progressive has about $16 bn in long term investments, to go along with its $16 bn in total liabilities.

Do you think this might be a worthwhile valuation exercise? Have you tried to calculate the business value of the insurance operations, basing it on comparable businesses, not on investments +/- float?

Regards, DTM
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