Insurance Float
Definition
Float is the pool of policyholder money an insurer holds between collecting premiums and paying claims — economically, money the insurer gets to invest for its own benefit even though it will eventually be paid out. On the balance sheet it corresponds roughly to loss reserves and unearned premiums, net of related receivables.
The economics, made famous by Warren Buffett's Berkshire Hathaway letters: if an insurer underwrites at a combined ratio below 100%, its float is better than free — it is being paid to hold and invest other people's money. Even at a modest underwriting loss, float can be cheaper funding than debt. Long-tail lines (liability, workers' comp), where claims pay out over many years, generate the most durable float.
The risk is under-reserving: if claims exceed reserves, past 'profits' reverse through adverse development.
Why interviewers ask
Float questions test whether you understand the insurance business model rather than just its ratios — 'why is an insurer valuable even if underwriting only breaks even?' It also connects to famous investor letters, giving interviewers a natural 'what have you read?' angle in FIG and buy-side conversations.
Related terms
Interviews don't test definitions — they test recall under pressure.
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