⚠ Reserving & the Long TailModerate threat

Berkshire Hathaway (BRK.B) — threat to the moat

Today's underwriting profit is an estimate; the real claims arrive years later with the bill.

An insurer's reported profit is, to a large degree, a guess. When Berkshire writes a long-tailed policy — reinsurance, workers' compensation, liability cover — it must estimate today what it will eventually pay in claims that may not be settled for a decade or more, and it books a profit or loss based on that estimate. If the reserves set aside prove too low, the shortfall shows up years later as an unpleasant charge against future earnings. The long tail that makes float so valuable also makes its profitability genuinely uncertain until long after the fact.

GEICO loss ratio (%)81.0%202371.8%202472.3%202575.3%H1 2676.6%Q2 26Losses and loss adjustment expenses / premiums earned; 10-K FY2025, 10-Q June 2026
Claims costs are rising again, and every point is an estimate until the claims settle.

Berkshire has, over the years, taken sizeable charges to strengthen reserves it had earlier judged adequate — a reminder that even careful underwriters can misjudge how claims will develop, especially in liability lines where legal and social trends can turn old policies far more expensive than anyone anticipated when they were written. Inflation compounds the problem, quietly raising the eventual cost of claims fixed in nominal terms years earlier.

This is a normal, well-understood feature of the business rather than a hidden flaw, and Berkshire's conservatism and enormous capital give it more room than most to absorb a reserving miss. But it means the float's cost is never fully known in the present, that reported insurance earnings should be read with some caution, and that a large adverse development in the long-tail lines remains a genuine, if manageable, risk to future results — the reserves stand behind $177.5 billion of float.1

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  1. ReportedBut it means the float's cost is never fully known in the present, that reported insurance earnings should be read with some caution, and that a large adverse development in the long-tail lines remains a genuine, if manageable, risk to future results — the reserves stand behind $177.5 billion of float.
    Berkshire Hathaway Form 10-Q, quarter ended 30 June 2026 - after-tax earnings (underwriting $1,731M vs $1,992M, insurance investment income $3,059M vs $3,367M, BNSF $1,558M vs $1,466M, BHE $891M vs $702M, manufacturing, service and retailing $4,470M vs $3,601M, investment gains $12,684M, net earnings $25,667M); GEICO pre-tax underwriting $994M vs $1,821M, combined ratio 91.2% vs 83.5%; Reinsurance $913M vs $650M; float $177.5B; insurance and other cash and Treasury Bills net $359.2B; consolidated cash $35,096M + $324,905M + $5,513M; equity securities $323.8B; H1 purchases of equities $39.4B and sales $27.8B; acquisitions of businesses net of cash $9.7B; $4.8B of treasury stock acquired in H1, most in Q2; OxyChem about $9.4B on 2 January; Taylor Morrison agreed 31 May at $72.50 a share, about $6.8B, closed 24 July; notes payable of insurance and other $43.3B; shareholders' equity $747.9B; BNSF revenue $6,601M vs $5,769M, fuel $1,173M vs $698M; BHE revenue $6,735M vs $6,418M; investment income down 9.1% on lower interest rates — Q2 2026 · publ. August 2026 · source ↗
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Generated September 23, 2026