Buffett bought insurers for the money that sits between premium and claim

Berkshire Hathaway in the mid-1960s was a dying New England textile mill; Buffett had taken it over as a value bet, but manufacturing capital was structurally trapped — every dollar reinvested in looms competed against cheaper Southern and overseas mills for a shrinking margin. The obvious moves were to run the mills harder or liquidate; neither turned the company into a compounding machine.

In 1967 Buffett instead used Berkshire's cash to buy National Indemnity, a small Omaha insurer, for $8.6 million. Insurers already sat on float — premiums collected before claims are paid — but most of the industry invested it conservatively in bonds and treated underwriting, not the float itself, as the business. Buffett saw National Indemnity's investment portfolio as something he could redirect toward better returns, and ran the float aggressively rather than conservatively.