With regard to how to value the Berkshire insurance float, - popping up again here now -, I still think the best place I have read about it is rb's post #89 in this topic of July 19^{th} 2017. rb's angle & way of looking at it just makes so much sense to me.

What do you think about this post on another thread?

http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-buybacks-could-berkshire-tender-stock/msg350069/#msg350069To me that suggests the formula given massively underestimates the value of the float, or am I missing something?

Imagine you get to choose one of the following two options:

a) You get $1m cash, no strings attached.

b) You get $1m in cost free float. This float grows at 5% per year, and while you never get to own it, you own all investment income derived from it for 50 years.

Assuming an 8% rate of return in the above scenario, $1m cash grows to $1.08m after 1 year if you choose "option a", and $0 grows to $80k if you choose "option b". You make $80k on the $1m float, and the float grows to $1.05m. So next year you make $84k from the float, plus 8% on the $80k you made in the previous year.

It takes 17 years for profit derived from cost-free float to exceed capital compounded at 8% starting with $1million cash.

After 50 years, $1m cash compounded at 8% has grown to $46.9m.

However, the investment income from $1m float growing at 5% per year, compounded at 8% per year, has grown to $94.5m, with the float standing at $11.5m.

So a few key points that to me seem to be missing from the formula:

1) The float is likely to grow over time (and I remember Warren or Charlie saying that if it contracts for any period of time, it would be very unlikely to be at faster than 3% per year, although I can't remember the source).

2) It's an extremely stable, long-term source of funds that is of far better quality than most types of borrowing, as there often tends to be an element of getting the rug pulled out from under your feet at the worst possible time. The more you need the money, the more likely it is the lending institution wants it back, or tries to charge you more when it's time to refinance. That's why float is not the Faustian bargain that a high level of 'normal' leverage is.

3) The longer your time horizon, the more the float is worth (assuming the float will tend to get larger over a long period of time).

Interested to hear your thoughts!