Warren Buffett’s Game-Changing Investment: National Indemnity

• Acquisition Year: 1967

• Total Purchase Price: $8.6 million

• Seller: Jack Ringwalt, founder of National Indemnity

• Business Model: Specialized in high-risk, hard-to-insure markets, including taxis, long-haul trucks, and rental cars.

• First-Year Performance Under Berkshire (1968):

  • Net Income: Increased from $1.6 million to $2.2 million

  • Premiums Earned: Grew from $16.8 million to $20.0 million

  • Return on Capital Employed: ~20%

• Investment Portfolio at Acquisition:

  • Bonds: $24.7 million

  • Stocks: $7.2 million

  • Total Managed Assets: Over $30 million—three times the purchase price

• Impact on Berkshire:

  • First major insurance acquisition, setting the foundation for Buffett’s long-term investment strategy.

  • Introduction of insurance "float," allowing Berkshire to reinvest premium income before claims were paid.

The Deal That Changed Berkshire Hathaway Forever

By 1967, Warren Buffett was searching for a business that could provide steady profits and a reliable cash flow stream to counterbalance the struggles of Berkshire Hathaway’s failing textile business. He found the perfect solution in National Indemnity, a specialty insurance company that focused on high-risk markets, such as taxis, long-haul trucking, and rental cars—industries that most insurers avoided due to the difficulty in pricing risk.

The seller, Jack Ringwalt, was an Omaha businessman who had previously declined to invest $50,000 in Buffett’s early partnership—a decision he would later regret. Ringwalt had a strict underwriting philosophy, believing that “there are no bad risks, only bad rates.” He ran National Indemnity with a focus on profitability rather than market share, making it one of the best-managed insurers in its niche.

According to Alice Schroeder’s book The Snowball, Buffett learned through a mutual acquaintance that Ringwalt was in one of his rare “selling moods”—a moment that only came about when he was particularly frustrated with the business. Buffett acted quickly, arranging a short meeting where he offered $50 per share, even though he personally valued the company at $35 per share.

This quick decision would turn out to be one of the greatest investments in Berkshire Hathaway’s history​.

What Made National Indemnity a Brilliant Investment?

1) A Well-Run Business at a Bargain Price

Buffett paid $8.6 million for National Indemnity, which at the time was generating $1.6 million in net income. This meant he acquired the company for just 5.4 times earnings—an extraordinarily low multiple for a high-return, capital-efficient business.

More importantly, the company was run conservatively. Unlike other insurers, National Indemnity didn’t chase revenue growth at the expense of underwriting profits. It only issued policies if it could do so profitably, which aligned perfectly with Buffett’s investment philosophy​.

2) The Power of Insurance "Float"

The biggest advantage of owning an insurance company is something called float—the money that policyholders pay in premiums before claims need to be settled.

At the time of the acquisition, National Indemnity had an investment portfolio worth over $30 million ($24.7 million in bonds and $7.2 million in stocks).

Buffett quickly realized that he could invest this float into stocks and bonds, just like National Indemnity had been doing. This meant that:

• The company could generate profits from investments even before paying out claims.

• The float was essentially “free capital” for Berkshire Hathaway to invest in other businesses.

Buffett later explained: "Float is wonderful if it doesn't cost anything. And at National Indemnity, it actually provided a profit."

Over time, Buffett repeated this strategy across multiple insurance acquisitions, using their float to invest in businesses like Coca-Cola, American Express, and Apple, turning Berkshire Hathaway into one of the world’s largest conglomerates​.

3) Long-Term Growth with No Additional Capital Needed

One of Buffett’s key investment principles is avoiding businesses that require constant reinvestment just to maintain profits.

National Indemnity was an ideal business in this regard:

• Unlike capital-intensive businesses such as manufacturing or retail, insurance companies don’t require large reinvestments.

• As long as the company underwrote policies conservatively, it could grow profits without deploying significant new capital.

• This allowed Buffett to reinvest profits from National Indemnity into new businesses, compounding Berkshire Hathaway’s wealth at an exponential rate.

How National Indemnity Transformed Berkshire Hathaway

In his first two years of ownership, Buffett immediately put National Indemnity’s float to work:

• The company’s investment portfolio grew from $32 million to $42 million—an increase of $10 million in just 24 months.

• This marked the beginning of Buffett’s lifelong strategy of using insurance float to invest in high-quality stocks and businesses​.

Today, Berkshire Hathaway’s insurance subsidiaries hold over $150 billion in float, serving as a permanent source of low-cost capital.

Without National Indemnity, Buffett may never have realized the full power of the insurance business—making this one of the most pivotal acquisitions in his career.

Lessons from Buffett’s National Indemnity Investment

1) The Best Investments Are Not Always the Flashiest

Unlike Coca-Cola or Apple, National Indemnity was not an exciting business. However, its steady profits, disciplined management, and ability to generate float made it one of the most valuable investments Buffett ever made.

2) The Power of Insurance Float

Buffett’s ability to invest premiums before paying claims allowed Berkshire Hathaway to compound capital at a much faster rate than traditional investment firms.

3) Invest in Businesses with Structural Advantages

National Indemnity succeeded because it had a clear competitive edge—it focused on underwriting profits, not market share. This disciplined approach protected it from the mistakes of other insurers.

4) Buying the Right Business Is More Important Than Getting the Lowest Price

Buffett paid more than his own valuation ($50 per share instead of $35), but it didn’t matter. He knew that a great business at a reasonable price is far better than an average business at a cheap price.

Conclusion: The Deal That Made Berkshire Hathaway a Financial Empire

The 1967 purchase of National Indemnity was a turning point for Warren Buffett. This was not just an acquisition—it was a strategic shift that laid the foundation for Berkshire Hathaway’s future success.

By acquiring an insurance company with a strong underwriting discipline, Buffett unlocked a powerful investment engine—the ability to use float as low-cost capital to invest in stocks and businesses with long-term growth potential.

From this single $8.6 million investment, Buffett built an insurance empire, leading to later acquisitions like GEICO and General Re, which helped propel Berkshire Hathaway into a $900 billion conglomerate.

Key Takeaway: National Indemnity was the blueprint for Buffett’s long-term strategy—buying businesses with stable cash flows, investing their capital wisely, and compounding returns for decades.

The information is provided for educational purposes only and does not constitute financial advice or recommendation and should not be considered as such. Do your own research.