2012: How much slower will float grow in the future?

CLIFF GALLANT: Along those lines, in regard to float, in your annual letter this year, you say that you expect the rate of growth in your float to slow going forward.

How slow? What are the drivers? Is it possible that float could shrink going forward?

WARREN BUFFETT: The float could shrink because we have lots of retroactive contracts, that by their nature, the float runs off, although not at a really rapid rate.

And, the float at GEICO is going to grow. I mean, that — the float at our smaller insurance companies will probably net grow over time a little bit, but it’s not a lot of money.

In Ajit’s operation, where we have a lot of the retroactive stuff, it’s very, very tough. You’ve always got a melting ice cube that you’ve got to, you know, add a little more water to.

And I have felt — I felt when the float was 40 billion it probably wasn’t going to grow very much, and now we’re at 70 billion. So, we are looking for ways to intelligently grow the float all the time. That’s been true ever since I got in the insurance business in 1967.

So, the desire is always there. We’ve been reasonably imaginative in figuring out ways to do it and still have the float cost us less than nothing. We’ve got the smartest guys in the business out there working on it. But the numbers are huge now, and you do have a natural runoff from the retroactive contracts.

So I just thought that it was fair to tell the shareholders that they really should — while they look at that history of float growth, that they really can’t extrapolate that.

If we get lucky, you know, we could add a fair amount more, but it’s also — it’s possible that it will actually dwindle down a little bit and — not at a fast rate — and it certainly is more than possible that it won’t grow at very much of a rate from here on.

Ajit told me that when I put that in the annual report that it became a challenge to him. So I’m glad I stuck it in there. He wants to make me look like an idiot, which isn’t too hard sometimes, and I may have to stick some other things in the annual report next year to get the attention.

I — if I had to bet on whether float will be higher or lower five years from now, I probably would bet just a slight bit higher, but I also wanted the shareholders to know there’s a possibility that it will decline a bit.

We’re working on things, though. Every day we’re working on things to try to figure out how to increase it.

Charlie?

CHARLIE MUNGER: Yeah. The casualty insurance business, by its nature, is not a terribly good business. You have to be in the top 10 percent, really, to do at all well in it, and I think we’re very lucky.

We probably have the best large-scale casualty insurance business in the world. Just because it came out of nothing doesn’t mean it’s nothing now. But I don’t think it will be wildly — it won’t grow wildly, will it, Warren?

WARREN BUFFETT: No.

CHARLIE MUNGER: No. But if you have something that is very good and it doesn’t grow wildly, that’s not the end of the world.

WARREN BUFFETT: It’s certainly brought us to where we are today.

CHARLIE MUNGER: Yes.

WARREN BUFFETT: It’s done wonders for us, and there’s been multiple people that have done — I mean, with the jobs that Tony has done at GEICO, I mean, he’s created billions and billions of dollars of value for Berkshire shareholders. That’s true certainly with Ajit. You know, it’s huge.

CHARLIE MUNGER: We get used to having Ajit work miracles, and he’ll probably continue to do so for a long time. But if Matt Rose has to carry some of the future freight, well, that’s all right.