10 Percent Margin Goal

The 10 Percent Margin Goal was a specific performance target set for Berkshire's insurance group, aiming for an underwriting profit equal to at least 10% of premium volume.

📍 Origin

The goal was formally introduced in the 1975 Letter.

"Our long-term goal in the insurance business is to consistently achieve a 10% underwriting margin. This is an ambitious target that requires us to walk away from business that does not meet our pricing standards."

📅 Chronological Evolution

• 1975 Letter: The Discipline Anchor.

  • Context: During the industry collapse of 1975, Buffett used this goal to explain why Berkshire's volume was declining. He refused to lower prices just to keep market share if it meant missing the 10% margin.

• 1977 Letter: Reinsurance Success.

  • Shift: The growth of the "Float" from reinsurance made the 10% goal even more powerful, as the underwriting profit effectively made the cost of that capital "less than zero."

💡 Context

• Atypical Years: He cautions that the higher margins achieved in the partnership's early years (e.g., 17%+ over the Dow) are unsustainable and should not be expected to continue indefinitely.
• Consistency: The goal is about long-term compounding rather than short-term spikes.

🔗 Connections

• Source: 1962 Letter
• Related: The Ground Rules, Dow Jones Industrial Average