Insurance FloatNarrow moat

The float is the beating heart of insurance economics, and PZU's is among the largest in the region. Every premium collected against a claim not yet paid is money the company holds and invests, and because PZU writes a great deal of long-tail life and liability business, its float is both large and long-duration — the gap between taking the premium and paying the claim can stretch for years, giving the company a stable, long-lived pool of capital to put to work.

The magic, as Buffett taught, is in the cost of that float. If PZU underwrites profitably — collecting more in premiums than it pays in claims and expenses — the float is better than free: it is capital the company is paid to hold and keeps all the investment returns on. Across the cycle PZU's underwriting has generally run at or near a profit, which means its float has been a source of value, not a cost. Multiply a large, long, low-cost float by even a modest investment return and you have the quiet source of much of the group's profit — the reason a commodity insurer can earn an un-commodity-like return on equity — north of 20% at last count¹.