Why Is the ‘Buffett of Technology’ Buying Insurance?

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Imagine bringing in a billion per minute.

This is exactly what Masayoshi Son did in a 45 minute meeting.

He convinced Saudi Arabia’s deputy crown price, Mohammed bin Salman, to give his fund US$45 bln.

The deputy crown prince made the trip to Japan at Son’s request.

He was looking to diversify his nation from oil. Son was also in the process of starting a new fund to invest in the technology of tomorrow.

I can’t imagine there were many disagreements.

The deputy crown prince had money to invest. Son needed capital. No wonder the meeting lasted less than an hour.

Now with funds from Saudi Arabia, Son is ever so close to his goal of US$100 bln for his Vision Fund.

Where will he unload such a sum?

Turning US$20 mln into US$132 bln

Son is the founder of SoftBank Group Corp. [TYO:9984]. And he’s one of the largest venture capitalists in the world.

Since founding Softbank in 1981, Son has made hundreds of investments. Many of them have been tech successes.

He was a prominent investor in companies like Yahoo Japan Corp. [TYO:4689] and Alibaba Group Holdings [NYSE:BABA].

The latter was Son’s most lucrative investment. His US$20 mln investment in Alibaba turned into US$132 bln.

He’s also become popular in start-up circles, investing in Uber, Airbnb and WeWork.

You can probably tell why he named his fund the Vision Fund.

Son is a ruthless deal maker who can make or break start-ups.

When talking with Uber, he told the founders to take his investment, or he would fund their competitor directly.

He said the same thing to Alibaba’s Jack Ma.

Now armed to the teeth with cash, Son is busy finding places to put it to work.

Yet strangely, he’s made an unorthodox investment that’s left analysts scratching their heads.

He might potentially buy an insurance company. 

Why is Son buying a cash cow?

There are two investments that have helped Buffett more than any others. GEICO and National Indemnity Company.

These two insurers make far more now than when Buffett first bought them. But that’s not their biggest advantage.

In the insurance business, Buffett can make investments almost for free.

Let me explain how.

I’m sure you know how insurance works. You pay a premium up-front. If anything happens to your car or house, you claim on damages later.

What happens to this upfront premium? Usually it goes into stocks and bonds. And hopefully returns are far higher on this up-front cash, called a ‘float’, than is cost in insurance claims.

Because of Buffett’s superior stock picking ability, float is worth far more in his hands than in most others.

That’s because Buffett can earn a higher return over time.

Is Son going to do the same?

155-year old Swiss Re is the insurer Son could soon buy. According to Bloomberg, Son could buy a third of the company.


Maybe he wants to follow Buffett’s footsteps and draw on more cash to invest. Or maybe he just likes cheap stocks.

Compared to competitors, Swiss Re is the cheapest of the lot. Based on a forward price-to-earnings (P/E), which is price paid for expected earnings, Swiss Re trades at a 157% discount to the average.

Compared to competitors, Swiss Re is the cheapest of the lot. Based on a forward price-to-earnings (P/E). 14-02-2018

Source: Bloomberg
[Click to open in new window]

What’s makes this even stranger is Son’s ride hail investments.

Son has large stakes in Uber, China’s Didi Chuxing, India’s Ola and Singapore’s Grab. He’s also a strong believer in automation and autonomous driving.

Such technology could eliminate the auto insurance business altogether. Advanced driver-assistance systems (ADAS) already significantly reduce crashes on the road.

Son has large stakes in Uber, China’s Didi Chuxing, India’s Ola and Singapore’s Grab. 14-02-2018

Source: Bloomberg
[Click to enlarge]

Is Son just hedging his technology bets with Swiss Re?

Data grab

Son’s interest in Swiss Re might have nothing to do with insurance. He’s likely far more interested in the data produced by the insurance company.

Reported by Bloomberg:

 ‘Much like the black boxes that insurers install in cars to measure on-the-road behaviour, in exchange for lower premiums, Uber already gives drivers automated feedback on whether they’re braking too often or accelerating too hard, for instance.

There’s the possibility too that SoftBank might be interested in tailoring insurance apps for gig economy workers such as Uber drivers (at least until they’re replaced by robots).

From the perspective of Uber, Didi and the rest of the ride-hailers, seeing Swiss Re’s reams of risk data from different geographic regions could help them decide where and how to deploy autonomous fleets.

So where will Son deploy US$100 bln?

You can bet data will be a huge opportunity for Son going forward. And it could be a huge opportunity for you as well.

Our exponential expert, Ryan Dinse believes the blockchain and data will create massive wealth for Aussie investors. He calls it the ‘blockchain collision’. Find out more about it, here.

Kind regards,

Harje Ronngard,
Editor, Money Morning

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