gaby lapera: there also are other types ofinsurers that are super niche-y, i guess. there's an insurance company called markel.and if you go to their website, they have this whole list of things that they insure.they insure everything from your children's birthday party to blacksmith shops and boatsand rvs and all that normal stuff too. it's crazy, they're all over the board.jordan wathen: right, right. insurers especially tend to make better investments in some ofthe more common types of insurance, because they tend to be specialized, so there's fewercompetitors. markel is a great case in investing insurance companies, because they've absolutelytrumped every other ... i shouldn't every other, but they trump most insurance companies.it's not because they're great at underwriting,
they also have a spectacular investor, tomgayner. lapera: okay, let's actually talk about that.insurance companies make their money in two different ways. i think the most intuitiveways that most people would guess that insurance companies make their money, is by paying outless in claims than they take in in premiums. i think that's pretty standard, run of themill. premiums, just in case you don't pay insurance for whatever reason, maybe you're16 and don't pay insurance, but you do invest. your premium is what you pay to the insurancecompany so that you are insured every month, and then claims are what the insurance companypays out to people. wathen: right, absolutely. i think most peopledo assume that insurance companies make money
from their underwriting, as in they generatemore in premiums than they pay out in losses and expenses, but for the most part that'sabsolutely not true. most insurers are happy to break even on their underwriting and maketheir money by investing the premiums and keeping the investment returns, which buffettcalls â€œfloatâ€, for example. lapera: yeah. this is how insurance companiesend acting a little bit like banks. wathen: right, yeah. they basically are banks.most of them have a huge balance sheet of assets that they've invested in with the premiumsthat they have received from their policy holders.