Yesterday, I talked about Buffett’s strategies — and how you can use them yourself.

But there’s one thing missing… the one thing that’s formed the foundation of his empire.

Or as Buffett himself refers to it: “…the engine that has propelled our growth since 1967.”

I’m of course talking about insurance.

In each shareholder letter, Buffett spends a lot of time explaining his insurance business, and why it has “been of great importance to Berkshire.” Namely, he talks about “float,” or money that belongs to others but is held by the insurer. While this float is held by the insurer, it can be invested — and any dividends, interest, and gains from those investments belong to the insurer.

#-ad_banner-#Buffett first entered the insurance business in early 1967 with the purchase of National Indemnity and a smaller sister company. Today, Berkshire is the second-largest property and casualty insurance company measured by premium volume and is the leader, by far, in float.

Berkshire has grown its insurance float from $39 million in 1970 to $114 billion in 2017.

Although it’s no secret that the foundation of Buffett’s wealth is built upon — and powered by — its insurance business, many observers often overlook this industry.

But not us… in fact, my premium Top Stock Advisor subscribers and I recently added one of the premier publicly traded P&C companies around to our portfolio…

My Latest Pick
I’ve talked about the benefits of the insurance industry before in Top Stock Advisor, specifically property and casualty (P&C) insurance. In my February 2017 issue, I told readers the story of how Shelby Davis turned $50,000 into $900 million by investing solely in the insurance industry.

And, yes, I know that insurance isn’t exactly the “sexy” stock that you talk to your friends about at cocktail parties. But what it can do is help you build generational wealth.

That’s because a well-run insurance outfit is something that my readers and I like to call a “Legacy Asset.“

Here’s what these Legacy Assets look like when held for a long time:

As you can see, over the last 20 years the S&P 500 provided investors with a total return of 154%. Not bad. But these Legacy Assets returned 530% and 1,310%.

Of course, you can’t just pick any insurance company willy-nilly, as not all insurance companies are created equal. There are key things to look for.

How To Find The Best In Class
First, I like insurance companies that are in the P&C business, as opposed to life insurance. As the saying goes, “there’s nothing certain in life, except death and taxes.” For life insurance companies, the death of a policyholder triggers a claim. This makes it tough to get an edge against the competition when it comes to underwriting, since death is a certainty.

By contrast, in P&C (and another category known as reinsurance) the event that is being insured — car wreck, house fire, etc. — may never happen. This means if you have good enough underwriting, you can really separate yourself from your peers and earn what’s called an underwriting profit.

Underwriting profit means that you received more in premiums than you paid out in claims. An easy way to measure how good a company is at underwriting is by looking at the insurance firm’s combined ratio. A combined ratio of under 100 means that the company is operating at an underwriting profit. Anything over 100 means it’s operating at a loss.

Why I’m Excited About My Latest Pick
My latest pick for Top Stock Advisor has historically operated with an underwriting profit. In its most recent quarter (three months ended June 30, 2018) its combined ratio came in at 98.1.

Now, the company’s combined ratio has crept up over the years. I believe the answer is two-fold. First, like many industries, the insurance industry goes through its own cycles. Those cycles are related to the premiums it charges. In the insurance world, this is known as “soft” and “hard” markets. During a soft market cycle, insurance premiums are typically lower, underwriting criteria are more lenient and the overall environment is more competitive. It’s during times like these when companies will operate at an underwriting loss in order to gain customers.

But great insurance companies won’t sacrifice underwriting profits for sales. Companies with strict underwriting discipline don’t mind if sales dip, because chasing that extra dollar of revenue by increasing your risk can have adverse effects down the road.

We’ve been in a soft market cycle, but that’s shifting because of reason number two…

Obviously, insurers insure risks. Those risks are unpredictable, and in rare cases events can happen that are devastating… like what happened in 2017.

2017 saw some of the costliest disasters in recent memory. You had hurricanes Maria, Irma and Harvey rock Texas, the Southeast U.S., Puerto Rico and other islands in the Caribbean. Combined, these hurricanes caused an estimated $92 billion in damages. That’s more than Hurricane Andrew (1992), the 9/11 Terror Attacks (2001) and Hurricane Sandy (2012) combined.

In other words, 2017 was a tough year for the insurance industry (to be sure it was nowhere near as tough as the folks who lost their lives, homes, personal items, and loved ones in these events).

As my latest pick started reporting the effects from these natural disasters at the beginning of the year, shares began to slip.

But while most investors are selling because of events that happened last year, I’m looking to take advantage of the selloff and add another great insurer to my portfolio.That’s because it’s one of the best in class in this business. And it’s a business that outlasts wars, recessions, and financial panics. Sure, there may be ups and downs, but make no mistake… this is the kind of business my Top Stock Advisor subscribers and I want to own for the long haul. And you should, too.

In my latest report — 7 Legacy Assets To Own Forever — I uncover several more investments that are similar to this. They dominate their markets, pay increasing dividends, and repurchase billions in stock. And most important of all, they reward investors with incredible returns over the long haul.

To learn more about these ideas, and get their names and ticker symbols, I invite you to visit this link.