Warren Buffett's Insurance Empire Doesn't Pay Dividends, But These 5 Insurance Companies Do

Author: Natan Ponieman | November 06, 2023 06:02pm

Berkshire Hathaway (NYSE:BRKA), Warren Buffett‘s conglomerate, posted a record $157 billion in cash holdings on its Saturday earnings call.

The record in cash comes accompanied by a whopping 41% year-over-year rise in operating profit — $7.65 billion in the third quarter of 2022 to $10.76 billion in Q3 of this year.

Despite spreading its empire across a variety of industries — which include energy, transportation, manufacturing and consumer products — a large part of Berkshire's portfolio consists of insurance companies.

In 1967, Buffet purchased Berkshire's first insurance company, National Indemnity, for $8.6 million. The acquisition proved to be a winning strategy for his firm: as insurers collect premiums before paying their clients, they have a constant flow of cash, or float, that can be invested in other assets along the way.

Today, Berkshire handles more insurance float than any other holding company on the planet. In 2022 its float rose from $147 billion to $164 billion.

Buffet recently told investors that Berkshire's insurance float grew 8,000-fold since the purchase of National Indemnity 55 years ago.

"Though not recognized in our financial statements, this float has been an extraordinary asset for Berkshire," said Buffet.

About $2.4 billion worth of the company's most recent quarterly operating profit came from its insurance arm. The insurance gains were largely pushed by profits coming from car insurer Geico. The company managed to turn around its balance sheet by hiking rates by almost 17%. It also cut the number of policies it issues by 13%, according to CFRA Research.

In contrast, Insurers had $1.1 billion in loss for Berkshire in Q3 2022.

Top Five Dividend-Paying Insurance Stocks

Rather than pay dividends, Berkshire Hathaway reinvests its money in an effort to maximize returns for its investors.

But for those looking to get a share of the insurance industry's gains, investing in dividend-paying insurance companies can be the right strategy. Consider these five, U.S.-based dividend-paying insurance companies by market cap:

1. New York-based Marsh & McLennan (NYSE:MMC) offers talent management, investment advisory, and management consulting on top of its insurance and reinsurance services. The company is up 17.4% in 2023, with a market cap above $96 billion. Its annual dividend yield is 1.46%.
2. Progressive Corp (NYSE:PGR) has been a major stick in the wheel for Berkshire-owned Geico. Earlier this year, Progressive surpassed the Berkshire subsidiary as the second-largest personal auto insurance underwriter in the U.S. Both remain behind privately-owned State Farm Mutual Automobile Insurance Co. Progressive is up 21.3% this year and has an annual dividend yield of 0.25%.
3. Chubb Ltd (NYSE:CB) hasn't registered as much gains this year as some of its insurance counterparts. The company is down 0.71% since January. With operations in 55 countries, the $89 billion market-cap company offers almost every kind of commercial and personal insurance. Its annual dividend yield is 1.57%.
4. Chicago-based British-American Aon Plc (NYSE:AON) is up 8.4% this year. The company was founded in 1982 with the merger of the Ryan Insurance Group merged with Combined Insurance Company of America, yet its roots trace back to 1918. Aon has an annual dividend yield of 0.76%.
5. Just last week, Arthur J. Gallagher & Co. (NYSE:AJG) Vice Presidents Christopher Mead and Joel Cavaness bought over $1 million in the company's stock, according to Benzinga Insights. The company is amongst the best performers in the insurance sector this year, up almost 30% since January, with an annual dividend yield of 0.91%.

Now Read: $1000 Invested In Marsh & McLennan 10 Years Ago Would Be Worth This Much Today

Posted In: AJG AON BRKA CB MMC PGR