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Front Book, Back Book: A Framework for Understanding Financial Companies

Big banks and insurance companies are a thing of the past.

Not in the way that fintech founders think (that’s a topic for another note). Rather, their balance sheets reflect decisions that were taken long ago, sometimes a very long time ago. 

Warren Buffett has often spoken about the ‘long tail’ business that Berkshire Hathaway writes — policies generating claims that often take many years to resolve. In his 1985 shareholder letter he told how an advertisement placed in an insurance weekly had garnered US$50 million of premiums. But he warned: “Hold…