1988-02-29 Warren Buffett.Escape the industry’s commodity economics in insurance
The math of the insurance business, encapsulated by the table, is not very complicated. In years when the industry’s annual gain in revenues (premiums) pokes along at 4% or 5%, underwriting losses are sure to mount. That is not because auto accidents, fires, windstorms and the like are occurring more frequently, nor has it lately been the fault of general inflation. Today, social and judicial inflation are the major culprits; the cost of entering a courtroom has simply ballooned. Part of the jump in cost arises from skyrocketing verdicts, and part from the tendency of judges and juries to expand the coverage of insurance policies beyond that contemplated by the insurer when the policies were written. Seeing no let-up in either trend, we continue to believe that the industry’s revenues must grow at about 10% annually for it to just hold its own in terms of profitability, even though general inflation may be running at a considerably lower rate.
保险生意的数学关系（表格已经把它浓缩了）并不复杂。当行业年度收入（保费）增幅只是在4%或5%附近“慢慢爬行”时，承保亏损必然会扩大。这不是因为车祸、火灾、风暴等发生得更频繁，也并非近来一般通胀的锅。今天，真正的元凶是“社会通胀”和“司法通胀”：走进法庭的成本已经膨胀到惊人程度。成本上升，一部分来自判决金额飙升，另一部分来自法官与陪审团倾向于把保单保障范围解释得比保险公司在出单时所设想的更宽。我们看不到这两股趋势有任何缓和，因此仍然认为：行业保费收入必须以大约每年10%的速度增长，才能在盈利能力上“勉强站稳”，即便一般通胀率可能显著更低。
保险离推动通胀的源头很近，包括医疗保险，但医保没有浮存金。
The strong revenue gains of 1985-87 almost guaranteed the industry an excellent underwriting performance in 1987 and, indeed, it was a banner year. But the news soured as the quarters rolled by: Best’s estimates that year-over-year volume increases were 12.9%, 11.1%, 5.7%, and 5.6%. In 1988, the revenue gain is certain to be far below our 10% “equilibrium” figure. Clearly, the party is over.
1985-87年的强劲保费增长几乎保证了行业在1987年取得出色的承保表现——事实也确实如此，那是一个“丰收年”。但随着季度推进，消息逐渐变味：Best’s 估算的同比保费增幅分别是12.9%、11.1%、5.7%、5.6%。到了1988年，保费增幅肯定会远低于我们所说的10%“均衡”水平。很明显，派对结束了。
However, earnings will not immediately sink. A lag factor exists in this industry: Because most policies are written for a one-year term, higher or lower insurance prices do not have their full impact on earnings until many months after they go into effect. Thus, to resume our metaphor, when the party ends and the bar is closed, you are allowed to finish your drink. If results are not hurt by a major natural catastrophe, we predict a small climb for the industry’s combined ratio in 1988, followed by several years of larger increases.
不过，盈利不会立刻下沉。这个行业存在滞后效应：大多数保单期限是一年，因此保险价格的上调或下调，要过许多个月才会对盈利产生完全影响。借用我们的比喻：派对结束、酒吧打烊后，你仍被允许把杯中的酒喝完。如果没有重大自然灾害冲击业绩，我们预测行业综合成本率在1988年会小幅上升，随后几年会出现更大幅度的上升。
The insurance industry is cursed with a set of dismal economic characteristics that make for a poor long-term outlook: hundreds of competitors, ease of entry, and a product that cannot be differentiated in any meaningful way. In such a commodity-like business, only a very low-cost operator or someone operating in a protected, and usually small, niche can sustain high profitability levels.
保险行业被一组糟糕的经济特性“诅咒”，因此长期前景不佳：竞争者成百上千、进入门槛低、产品在任何有意义的维度上都难以差异化。在这种近似大宗商品的生意里，只有极低成本的经营者，或在受保护（且通常很小）的细分利基中经营的人，才能维持高水平的盈利。
BRK是先做投资，再转入保险，顺序反过来可能走不到现在的状态，一是没有事先积累的、足够雄厚的资本；二是先做保险会一直卡着脖子过日子，很难不分红、积累起足够雄厚的资本，并且需要比较长的时间。
When shortages exist, however, even commodity businesses flourish. The insurance industry enjoyed that kind of climate for a while but it is now gone. One of the ironies of capitalism is that most managers in commodity industries abhor shortage conditions—even though those are the only circumstances permitting them good returns. Whenever shortages appear, the typical manager simply can’t wait to expand capacity and thereby plug the hole through which money is showering upon him. This is precisely what insurance managers did in 1985-87, confirming again Disraeli’s observation: “What we learn from history is that we do not learn from history.”
然而，一旦出现“供给短缺”，即便是大宗商品式的行业也会繁荣。保险业曾享受过一段这样的气候，但现在它已消失。资本主义的一大讽刺在于：大宗商品行业的大多数管理者厌恶短缺环境——尽管恰恰只有在短缺时，他们才可能获得好回报。每当短缺出现，典型经理人就迫不及待扩张产能，去堵住那个“金钱正从中倾泻而下”的洞。1985-87年保险业的管理者正是这么干的，再一次印证了 Disraeli 的那句观察：“我们从历史中学到的，是我们不会从历史中学习。”
这样的例子太多，比如，2020年以前美国的石油公司，参考：《2021-11-24 Ted Stop trying to get Blockbuster Video — i.e. Big Oil—to accelerate energy transition》。
Over the last decade (2011-2020), returns on capital employed (ROCE) for the Big Oil-5 averaged 8.5% ($68 average nominal WTI oil price average over the period). More troubling, over 2015-2020, ROCE averaged a paltry 3.5% ($51/bbl WTI). There is an urgent need to improve profitability in the area it knows best. Prior to 2011, Big Oils actually generated quite competitive profitability, free cash flow, and shareholder returns. Over 1991-2010, ROCE for Big Oil-5 averaged 19% (pre-merger periods include only the surviving heritage company), which helped traditional energy remain a meaningful weighting in the S&P 500 until the post-2014 bust period began.
在过去十年（2011-2020 年），五大石油公司的资本回报率（ROCE）平均为 8.5%（同期 WTI 原油价格平均名义价格为 68 美元）。更令人担忧的是，在 2015-2020 年间，ROCE 平均仅为 3.5%（WTI 每桶 51 美元）。迫切需要在其最擅长的领域提高盈利能力。在 2011 年之前，五大石油公司实际上产生了相当有竞争力的盈利能力、自由现金流和股东回报。在 1991-2010 年间，五大石油公司的 ROCE 平均为 19%（合并前的时期仅包括存续的传统公司），这使得传统能源在 2014 年后经济衰退开始之前，仍在标准普尔 500 指数中占有重要权重。
At Berkshire, we work to escape the industry’s commodity economics in two ways. First, we differentiate our product by our financial strength, which exceeds that of all others in the industry. This strength, however, is limited in its usefulness. It means nothing in the personal insurance field: The buyer of an auto or homeowners policy is going to get his claim paid even if his insurer fails (as many have). It often means nothing in the commercial insurance arena: When times are good, many major corporate purchasers of insurance and their brokers pay scant attention to the insurer’s ability to perform under the more adverse conditions that may exist, say, five years later when a complicated claim is finally resolved. (Out of sight, out of mind—and, later on, maybe out-of-pocket.)
在 Berkshire，我们通过两种方式努力逃离行业这种“商品化”的经济学。第一，我们用财务实力来差异化我们的产品，而我们的财务实力超过业内任何其他公司。不过，这种优势的用途也有限：在个人保险领域它毫无意义——买车险或房主险的人，即便保险公司倒闭（这种事发生过很多），也照样会拿到赔款。在商业保险领域，它也常常毫无意义：当环境好时，许多大型企业买家及其经纪人很少关注保险公司在更不利条件下的履约能力——比如五年后，一桩复杂索赔终于要结案时。（眼不见心不烦——然后可能就要自己掏腰包。）
Periodically, however, buyers remember Ben Franklin’s observation that it is hard for an empty sack to stand upright and recognize their need to buy promises only from insurers that have enduring financial strength. It is then that we have a major competitive advantage. When a buyer really focuses on whether a $10 million claim can be easily paid by his insurer five or ten years down the road, and when he takes into account the possibility that poor underwriting conditions may then coincide with depressed financial markets and defaults by reinsurer, he will find only a few companies he can trust. Among those, Berkshire will lead the pack.
然而，买方也会周期性地想起 Ben Franklin 的那句观察：空麻袋很难站直——于是他们意识到，自己只能向那些拥有持久财务实力的保险公司购买“承诺”。正是在这种时候，我们就拥有了重大的竞争优势。当买方真正聚焦于：五年或十年后，一笔1,000万美元的索赔，保险公司是否能轻松支付；并且把这样一种可能性也纳入考虑——糟糕的承保环境也许会与低迷的金融市场、以及再保险人违约同时出现——他就会发现：他能信任的公司只有少数几家。而在这些公司里，Berkshire 会领跑。
Our second method of differentiating ourselves is the total indifference to volume that we maintain. In 1989, we will be perfectly willing to write five times as much business as we write in 1988—or only one-fifth as much. We hope, of course, that conditions will allow us large volume. But we cannot control market prices. If they are unsatisfactory, we will simply do very little business. No other major insurer acts with equal restraint.
我们差异化自己的第二种方式，是我们对业务规模（volume）保持彻底的无所谓。1989年，我们完全愿意把业务量做成1988年的五倍——也同样愿意只做1988年的五分之一。当然，我们希望条件允许我们做大规模；但我们无法控制市场价格。如果价格不令人满意，我们就干脆几乎不做业务。没有任何一家主要保险公司能像我们这样克制。
Three conditions that prevail in insurance, but not in most businesses, allow us our flexibility. First, market share is not an important determinant of profitability: In this business, in contrast to the newspaper or grocery businesses, the economic rule is not survival of the fattest. Second, in many sectors of insurance, including most of those in which we operate, distribution channels are not proprietary and can be easily entered: Small volume this year does not preclude huge volume next year. Third, idle capacity—which in this industry largely means people—does not result in intolerable costs. In a way that industries such as printing or steel cannot, we can operate at quarter-speed much of the time and still enjoy long-term prosperity.
保险业里存在三条条件——多数行业并不具备——使我们可以拥有这种灵活性。第一，市场份额并不是盈利能力的重要决定因素：在这个行业里，与报纸或杂货行业不同，经济规律不是“胖者生存”。第二，在保险的许多领域（包括我们经营的大多数领域），分销渠道并非专属，进入也很容易：今年量小，并不妨碍明年量巨大。第三，闲置产能——在这个行业里主要意味着“人”——不会带来难以忍受的成本。与印刷或钢铁等行业不同，我们可以在很长时间里以四分之一速度运转，却仍能享有长期繁荣。
BRK就是在一个商品化的业务想出了差异化的策略。
We follow a price-based-on-exposure, not-on-competition policy because it makes sense for our shareholders. But we’re happy to report that it is also pro-social. This policy means that we are always available, given prices that we believe are adequate, to write huge volumes of almost any type of property-casualty insurance. Many other insurers follow an in-and-out approach. When they are “out”—because of mounting losses, capital inadequacy, or whatever—we are available. Of course, when others are panting to do business we are also available—but at such times we often find ourselves priced above the market. In effect, we supply insurance buyers and brokers with a large reservoir of standby capacity.
我们奉行“按风险暴露定价、而不是按竞争对手定价”的政策，因为这对股东有利。但我们也很高兴地报告：这同样具有“亲社会”的效果。这个政策意味着：只要价格达到我们认为足够的水平，我们随时可以承接几乎任何类型的财产与意外险的大规模业务。许多其他保险公司采取“进进出出”的做法：当他们“退出”——因为亏损攀升、资本不足或其他原因——我们依然在场可用。当然，当别人气喘吁吁想抢生意时，我们也在场——只不过那种时候我们往往发现自己报的价格高于市场。实际上，我们为保险买方与经纪人提供了一个巨大的“备用承保能力水库”。
One story from mid-1987 illustrates some consequences of our pricing policy: One of the largest family-owned insurance brokers in the country is headed by a fellow who has long been a shareholder of Berkshire. This man handles a number of large risks that are candidates for placement with our New York office. Naturally, he does the best he can for his clients. And, just as naturally, when the insurance market softened dramatically in 1987 he found prices at other insurers lower than we were willing to offer. His reaction was, first, to place all of his business elsewhere and, second, to buy more stock in Berkshire. Had we been really competitive, he said, we would have gotten his insurance business but he would not have bought our stock.
1987年年中发生的一件事，能说明我们的定价政策会带来哪些后果：美国最大的家族控股保险经纪公司之一，由一位长期持有 Berkshire 股票的人领导。他经手许多大型风险，这些都是我们纽约办公室可能承接的业务。很自然，他会尽最大努力为客户争取最优条件；也同样自然地，当1987年保险市场显著软化时，他在其他保险公司那里看到了比我们愿意给出的更低价格。他的反应是：第一，把所有业务都放到别家；第二，买入更多 Berkshire 股票。他说，如果我们真的那么有竞争力，我们会拿到他的保险业务，但他就不会买我们的股票了。
热门主题
Recent Articles
1988-02-29 Warren Buffett.Escape the industry’s commodity economics in insurance
Refer To：《1988-02-29 Warren Buffett's Letters to Berkshire Shareholders》。 The math of the insurance business, encapsulated by the table, is not very complicated. In years when the industry’s annual gain in revenues (premiums) pokes along at 4% or 5%, ...1988-02-29 Warren Buffett.Controlled Company and Allocate Capital
Refer To：《1988-02-29 Warren Buffett's Letters to Berkshire Shareholders》。 In making both control purchases and stock purchases, we try to buy not only good businesses, but ones run by high-grade, talented and likeable managers. If we make a mistake ...1996-03-01 Warren Buffett.Convertible Preferred Stocks
Refer To：《1996-03-01 Warren Buffett's Letters to Berkshire Shareholders》。 Convertible Preferred Stocks 可转换优先股 As many of you will remember, Berkshire made five private purchases of convertible preferred stocks during the 1987-91 period and the time ...1989-02-28 Warren Buffett.Arbitrage
Refer To：《1989-02-28 Warren Buffett's Letters to Berkshire Shareholders》。 Arbitrage 套利 In past reports we have told you that our insurance subsidiaries sometimes engage in arbitrage as an alternative to holding short-term cash equivalents. We prefer, ...1990-03-02 Warren Buffett.Mistakes of the First Twenty-five Years (A Condensed Version)
Refer To：《1990-03-02 Warren Buffett's Letters to Berkshire Shareholders》。 Mistakes of the First Twenty-five Years (A Condensed Version) 前二十五年的错误（精简版） To quote Robert Benchley, “Having a dog teaches a boy fidelity, perseverance, and to turn around ...