Insurance companies do really well out of rising interest rates. Insurance companies also get screwed by inflation:
An insurance company collects premiums from its clients and pays out if bad things happen. That’s pretty much it really. If it prices the risk correctly it profits, if it doesn’t charge enough it loses. But while that’s basically how insurance works that’s not all of it.
To understand how Berkshire Hathaway works we’ve got to add in time. Because, of course, those premiums get collected now – but the claims are paid out only if the bad thing happens, some point in the future.
That means the insurer gets to sit on the cash in between those two moments in time. Moreover, the insurer gets to invest that money between those two moments and the profits from that activity belong to the insurer, not the insured.
Why does this matter? Because Berkshire Hathaway’s “float” – the amount it gets to sit on, or invest – is near $109bn these days.