Warren Buffett was apparently quite pessimistic about the stock market late last year. He remained CEO until the end of the year, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B)holding record amounts of cash and selling large amounts of major positions.
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But Buffett did choose to add to certain positions — a bullish sign, at least for some stocks. In fact, after making the massive purchase, Buffett now owns 9.3% of the iconic value stock, pushing the position into his top 10 bets at Berkshire Hathaway.
Berkshire Hathaway has shown itself to be a big fan of the company Chubb (NYSE:CB), In the third quarter of last year, it purchased about 2.9 million shares of the insurance giant, for a total investment of more than $10 billion. Berkshire Hathaway first purchased the stock in the first quarter of 2024, and the position now represents approximately 3.9% of Berkshire’s total publicly traded portfolio.
If you know anything about Berkshire, you can probably guess what has Buffett so interested in Chubb stock. Chubb is essentially a global, diversified insurance provider. The company specializes in commercial and personal property and casualty insurance, but also operates in casualty insurance, health insurance, life insurance and reinsurance.
This is a business that Buffett and Berkshire know very well. While Berkshire now has a large portfolio of companies, the core of Berkshire has always been its privately held insurance portfolio. The reason is simple: These businesses generate steady cash that Buffett can invest.
When an insurance company writes a policy, premiums are paid upfront and claims can only be paid later. This generates additional cash that can be invested until these claims have to be paid. Buffett calls this extra cash “cash float.” By investing in outstanding shares, Buffett and Berkshire essentially receive an interest-free return on capital. In short, Buffett knows the insurance industry inside and out. But there’s one particular reason he might be interested in Chubb stock these days.
According to many key indicators, the stock market is currently at all-time highs. However, boring insurance stocks like Chubb Insurance still trade at reasonable valuations. The stock currently trades at a price-to-book ratio of about 1.8. Three years ago, shares were trading at 2.2 times book value. It’s hard to find quality stocks that are cheaper today than they were three years ago, but that’s exactly what Chubb stock offers.
