How Berkshire Hathaway's GEICO Crushes Allstate and Progressive

The GEICO business of Berkshire Hathaway is undoubtedly a household name. But it's not just its name that outperforms peers like Allstate and Progressive.

Jun 27, 2014 at 6:30AM

Allstate (NYSE:ALL) and Progressive (NYSE:PGR) have commanding positions in the insurance industry in America. But it turns out Berkshire Hathaway's (NYSE:BRK-A)(NYSE:BRK-B) GEICO is absolutely crushing them.

The big leap
For the full year in 2013, we learned that GEICO supplanted Allstate to claim the title of being the second-largest auto insurer in the United States. The business at Berkshire Hathaway saw its auto insurance premiums rise by 11.3%, to $18.6 billion, while Allstate only saw its rise by 3.4%, to $18.1 billion.

The growth of Progressive and market leader State Farm was better than Allstate, but none of the big four in insurance saw the gains posted by GEICO: 

Source: SNL Financial

In fact, it wasn't just the three major insurers of State Farm, Allstate, and Progressive that GEICO topped, but, in fact, all of the top-20 insurers when it came to adding to its customer base. SNL Financial notes the next closest insurer that saw growth close to what GEICO witnessed was Liberty Mutual --  its policies rose by almost $775 million, or 9.4%, to stand at $9 billion.

And GEICO is running its insurance business more efficiently and effectively, as well.

One of the key metrics to watch at insurers is the combined ratio. It's used to calculate if the insurer is actually making money from the policies it writes, after factoring out the losses and expenses. As my colleague Brendan Mathews explains, "A ratio below 100 is good -- that means profits on underwriting; a ratio above 100 is bad -- that indicates losses on underwriting."

Here, again, we see Allstate, Progressive, and State Farm were once again topped by GEICO.

Source: SNL Financial

GEICO had the highest loss ratio -- which measures the actual claims it had to pay out relative to the premiums it brought in -- but you can see it offsets this by doing a remarkable job at managing its expenses. This effective management of the costs explain why it was able to post an underwriting gain of $1.1 billion last year.


On the other hand, despite the fact that Allstate wrote just 3% fewer policies than GEICO, its income was 40% lower, standing at $668 million in 2013, thanks to its incredibly high expense ratio.

Looking ahead
Warren Buffett has long lauded GEICO for its ability to manage its expenses. When it was fully purchased nearly 20 years ago, he said, "The ultimate key to its success is its rock-bottom operating costs, which virtually no competitor can match."

This was true 20 years ago, and it clearly is still true today. It's one more reason for shareholders to be optimistic about the future of Berkshire Hathaway.

Warren Buffett: This new technology is a "real threat" to GEICO
Warren Buffett isn't scared of insurers, but there is one thing that makes him nervous. In fact, at the recent Berkshire Hathaway annual meeting, Buffett admitted this emerging technology is threatening his biggest cash cow. While Buffett shakes in his billionaire boots, only a few investors are embracing this new market, which experts say will be worth more than $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping into one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Patrick Morris owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway and Progressive. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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