Berkshire Hathaway, the Warren Buffett-run holding company and conglomerate, has reported a rise in premiums written within its property and casualty (P&C) reinsurance business in both the second quarter and half year of 2023, while the segment produced a solid combined ratio despite a rise in losses and loss adjustment expenses when compared with the prior year.
For Q2 2023 and H1 2023, Berkshire’s P&C reinsurance operation saw premiums swell to $5.9 billion and $12.1 billion, respectively, compared with $4.2 billion and $8.5 billion for the comparable prior year periods.
The firm explains that premiums written in Q2 and H1 included $1.2 billion and $2.6 billion, respectively, from the inclusion of TransRe Group. Otherwise, premiums written increased by 11.9%, or $1 billion in H1 2023 when compared with H1 2022, which the firm attributes to increases in property business and higher rates.
As we discussed previously, Berkshire took a giant $1 billion share of Florida’s Citizens Property Insurance Corporation’s reinsurance renewal, as the firm continues to expand its property and casualty reinsurance business in favourable market conditions.
While premiums swelled on the back of property growth, losses and loss adjustment expenses rose, year-on-year, 35.1% in Q2 2023 to almost $2.8 billion and 41.3% in H1 2023 to $6.2 billion. It’s worth highlighting that the increases here are primarily a result of the inclusion of TransRe, to the tune of $785 million in Q2 and $1.5 billion in H1 2023.
Overall, reports the company, the loss ratio actually fell 4.1% in the first six months of 2023 when compared with a year earlier.
Given the significant level of property lines business the firm writes, which Berkshire notes it generally does not retrocede, its P&C reinsurance earnings are subject to volatility for catastrophe events. Year-on-year, though, losses incurred from significant catastrophe events in H1 declined from $629 million in 2022 to $528 million in 2023.
At the same time, Berkshire’s P&C reinsurance business saw a rise in underwriting expenses in both Q2 and H1 2023, to $1.4 billion and $2.8 billion, respectively, with the expense ratio rising by 12.5% in Q2 and 9.5% in H1. The carrier attributes this to changes in foreign currency exchange rates, and adjustments in business mix, including the inclusion of TransRe, which contributed $385 million to the Q2 and $770 million to the H1 underwriting expense.
The elevated losses and loss adjustment expenses and underwriting expenses, has resulted in a higher albeit still robust P&C reinsurance combined ratio for Berkshire. For the second quarter, the combined ratio has risen from 72.4% to 78.9%, and for the first half of the year it’s risen from 80.1% to 85.5%.
All in all, the P&C reinsurance business achieved pre-tax underwriting earnings of $1.1 billion in Q2 2023, up from $976 million a year earlier. Earnings also increased for the half year, to $1.5 billion from almost $1.4 billion last year.
Turning to the life and health reinsurance segment, and premiums fell slightly in both the quarter and half year periods. For the quarter, the pre-tax underwriting result fell from $124 million to $47 million, although increased for the half year from $98 million in 2022 to $184 million in 2023.
Overall, Berkshire’s reinsurance operation produced an underwriting profit of $827 million in Q2 2023 compared with $1.1 billion in Q2 2022, with the decline a result of steeper year-on-year losses in both the retroactive reinsurance and periodic payment annuity businesses. It’s a similar story for the half-year, with the underwriting result of $1.1 billion coming in below the $1.4 billon seen a year earlier, again a result of higher losses in retroactive reinsurance and periodic payment annuity.
Berkshire Hathaway Primary Group also performed well in the second quarter and half year, with premiums written rising for both periods on the back of the inclusion of Alleghany Insurance and comparative increases from BH Specialty and BH Direct.
The primary insurance business produced an underwriting result of $272 million in Q2 2023 compared with $242 million in Q2 2022, while for the half year the result jumped from $334 million to $540 million.
Berkshire Hathaway also reports on its all-important insurance investment float for the first half of the year, which reached $166 billion at June 30th, 2023, up from $165 billion at the end of March and $164 billion as at December 31st, 2022.
As a result of its combined insurance operations generating underwing gains in H1 2023, the average cost of float was negative.
