Warren Buffett’s insurance and reinsurance divisions of Berkshire Hathaway are expected to report elevated combined ratios in the firm’s annual results this week, with catastrophes, attritional weather claims and adverse development of longer-tailed liabilities all expected to have dented its performance.
Berkshire Hathaway is scheduled to report its annual results on Saturday and analysts have been speculating about what to expect.
With 2018 having featured significant catastrophe losses, numerous severe weather events and also widespread financial market volatility, there is an expectation that both sides of the balance-sheet may have been dented somewhat.
Of course, Berkshire Hathaway is among the best able to absorb whatever losses and investment decline that 2018 could throw at it, while its conglomerate approach to broader industries means income is almost certain to flow to offset any insurance, reinsurance and investment hits.
Analysts suggest that the insurance and reinsurance combined ratios at Buffett’s specialty insurance and global reinsurance business units are likely to be elevated.
To blame are the global catastrophe losses that struck the industry in 2018, which even Berkshire Hathaway will not be immune to, despite the fact Buffett himself said the firm was pulling back on catastrophe risks back in 2014 (as our sister publication Artemis reported at the time).
Also set to dent the profitability of Buffett’s insurance and reinsurance units is attritional weather related losses, which analysts expect will be elevated as well.
Finally, analysts at Keefe, Bruyette & Woods say that Berkshire Hathaway is also expected to report some adverse development of its asbestos and other environmental risk loss reserves, which could further elevate some of its companies combined ratios.
But other business units, railroad, utilities, and also its large investment stakes in global companies, are likely to offset some of the expected dent to re/insurance revenues at Berkshire Hathaway.
At the same time Berkshire’s huge investment float pot will also make its contribution, but is also expected to have suffered from financial market volatility and equity movements towards the end of 2018.
We’ll update you on Berkshire Hathaway’s results once they are in.