The story
Founded by Leo Goodwin, Sr. in 1936, in Fort Worth.1
GEICO was founded in 1936 by Leo Goodwin Sr. and his wife Lillian Goodwin to provide auto insurance directly to federal government employees and their families. Since 1925, Goodwin had worked for USAA, an insurer that specialized in insuring only military personnel. He decided to start his own company after rising as far as a civilian could go in USAA's military-dominated hierarchy. The Goodwins funded the creation of GEICO with $25,000 of their own money and $75,000 from Fort Worth, Texas-based banker Cleaves Rhea, with legal assistance from future GEICO CEO Lorimer Davidson.
In 1937, the Goodwins relocated GEICO from San Antonio, Texas, to Washington, D.C., and reincorporated the company as a D.C. corporation after realizing that their business model would work best in the place with the highest concentration of federal employees.
In 1948, the Rhea family sold its 75% stake of GEICO to a coalition of investors, which was led by Benjamin Graham's Graham-Newman Partnership taking 50% (worth $712,000 at the time); this sale accidentally violated a SEC regulation, which forced Graham-Newman to divest a portion of their holdings in 1949, resulting in GEICO becoming a publicly traded company at ~$27/sh. Graham-Newman's investment in GEICO eventually resulted in a position worth $400 million by 1972, which was by far Graham-Newman's best investment and outperformed the rest of their portfolio combined.
In 1951, Warren Buffett, then a Columbia University graduate student under Benjamin Graham, interviewed Lorimer Davidson (then a VP) and named GEICO "The Security I Like Best". From 1948 to 1958, GEICO's market capitalization grew almost 50 times.
In 1958, Goodwin retired and was succeeded by Lorimer Davidson, who grew the company's insurance premiums at a compound rate of 16% annually from $40 million to $250 million over his tenure. Davidson retired and was replaced in 1970 by Ralph Peck (President and COO) and David Lloyd Kreeger (Chairman and CEO), who had been one of the other investors in 1948.
In 1974 under Kreeger's leadership, GEICO began to insure the general public after real-time access to computerized driving records became available throughout the United States. At this time, GEICO was briefly the fifth-largest U.S. auto insurer. By 1975, it was clear that GEICO had expanded far too rapidly (during the 1973–75 recession) when it reported a US$126.5 million loss. Kreeger retired in 1975, although he continued in his role as chairman of the executive committee until 1979 when he was named honorary chairman, and Peck left in 1976 after GEICO's share price had fallen from $42 to $5. To prevent GEICO from collapsing, a consortium of 45 insurance companies agreed to take over a quarter of its policies, and it was forced to issue a stock offering, thus diluting existing stockholders, to raise money to pay claims. It took five years – during which the company shrank significantly – and a massive reorganization led by John J. Byrne and supported substantially by Buffett, to set GEICO on the path to recovery. Alvin E. Krause, retired from GEICO, was given carte blanche by the directors to help bring about a wholesale reorganization of GEICO's underwriting operations – including promotions and dismissals. He helped nurse the insurance firm back to financial health. He was a director of the GEICO Corp. from 1978 to 1983, and was an honorary director at the time of his death. He was chairman of Criterion from 1978 to 1981. Having been with GEICO since 1938.
From Wikipedia’s article on GEICO, shared under CC BY-SA 4.0.4