Theo Costa

The acquisition of equity stakes in 2025 involves an approval process that must comply with current regulations, and this is not just a minor sub-event. Regulatory mandates impose specific conditions for each type of acquisition, especially regarding competition and protection of minority shareholders. For example, an acquisition exceeding a certain threshold may be prohibited without approval from competition authorities, even if liquidity is available.

Labeling the insurance float as a simple contingent liability instead of perpetual capital is not a contextual opposition, but a fundamental distinction dictated by regulatory mandate.
The jurisdiction of the UK, with oversight from the PRA and Solvency II requirements, imposes strict technical reserves, making its use as free capital prohibited without specific approval.
For example, after the 2008 financial crisis, the FCA strengthened liquidity requirements, drastically limiting insurers' ability to treat this float as an investment fund without solvency guarantees.
It is not a matter of optimization, but of prudential compliance.

Talking about "perpetual investment funds" for insurance float totally ignores the regulatory constraints that govern these funds.
Float is a potential liability, not free capital, and its availability is closely tied to solvency requirements.
In the UK, the Prudential Regulation Authority (PRA) imposes strict frameworks like Solvency II, requiring adequate capital reserves, making the concept of perpetuity difficult to sustain.
For example, an insurance company that does not meet minimum coverage ratios may be restricted from investing, significantly limiting its ability to use float for potential returns, far from a "low-cost" source.

The idea that insurance float would be a simple “competitive advantage” neglects the strict regulatory compliance framework that fundamentally defines it as a liability.
The jurisdiction, for example via the PRA in the UK, imposes rigorous capitalization requirements under Solvency II to ensure solvency, making the use of these funds to generate significant alpha far from free capital.
These collected premiums are mandated to cover future claims, and any aggressive allocation attempt must comply with approval rules for active-passive matching.
Ignoring this would turn a necessary fund into a systemic risk, as illustrated by past underwriting shocks that required provisions well beyond expected returns.

The acquisition of equity stakes is not merely a sine qua non condition for generating cash flows but is a decision subject to specific regulatory approval constraints and compliance. Such an operation is prohibited without the approval of the competent authorities and a rigorous risk analysis related to holding illiquid assets, such as stakes in unlisted companies, regardless of available operational flows. The example of investment restrictions in certain jurisdictions, such as those in force for insurance companies, shows that liquidity is not the only criterion.

Claiming that Berkshire's equity investments in 2025 are merely a subcomponent of the 2024 operational cash flows neglects the flexibility of the capital allocation mandate.
Their ability to mobilize funds is not limited to the previous year; regulations allow Berkshire to use its vast cash reserves, as evidenced by their $189 billion in cash as of December 31, 2023, or the proceeds from asset disposals.
An investment approval could very well be financed by a strategic divestment, making the relationship less direct than simple dependency.
The strength of the fortress balance sheet and Berkshire's insurance float give them a discretion that transcends the flows of a single fiscal year.

Claiming that insurance float is a competitive advantage without fully recognizing its nature as a potential liability seems to me a dangerous simplification.
This capital is not without conditions; it is intrinsically linked to claims payment obligations, which impose strict mandates for coverage.
In case of significant market drawdowns or unexpected catastrophic events, as we saw with recent floods in New South Wales, this "productive capital" quickly turns into a major exit cost, requiring immediate liquidity.
Ignoring this basic risk amounts to neglecting the primary function of insurance and the need to maintain sufficient reserves to meet obligations, under penalty of triggering ASIC audits.
Prudent management of liabilities is a fundamental fail-safe, not a strategic option.