The property and casualty reinsurance business of Warren Buffett-run holding company Berkshire Hathaway returned to profit in 2021, delivering positive income on the back of a 95.1% combined ratio, despite the impacts of $2.1 billion of major catastrophe losses.
A year ago, Berkshire Hathaway’s P&C reinsurance division, which includes Gen Re, fell to a -$799 million pre-tax underwriting loss for full-year 2020, largely driven by major catastrophes and pandemic losses, which drove an elevated combined ratio of 106.5%.
For full-year 2021, Warren Buffett’s P&C reinsurance division has fared much better, despite 2021 being another significant catastrophe loss year, one of the top-five.
The P&C reinsurance unit delivered a pre-tax underwriting profit of $667 million for 2021, as the loss ratio fell to just under 72% and the combined ratio came out at 95.1%.
Berkshire’s P&C reinsurance business was also expansive in 2021, with premiums written increasing by more than 6.4% to $14.15 billion.
More notable though is the growth Warren Buffett’s P&C reinsurance division has achieved over the last two years, with premiums now 36% higher than they were in 2019.
That’s a clear sign that Berkshire Hathaway has been able to take advantage of the hardening reinsurance market, which will help the division deliver much stronger profits in a normal catastrophe year.
The company reported that premium growth was primarily attributable to net new business, increased participations and improved prices on renewals, with property coverages the major source of growth.
Interestingly, Berkshire Hathaway’s P&C reinsurance unit benefited from significant reserve releases from prior years, with reductions in estimated ultimate liabilities for losses occurring in prior years amounting to $718 million.
On the life and health reinsurance side of the Berkshire Hathaway business, the pandemic continued to weigh in 2021.
The company has reported “significant increases in mortality in the U.S., South Africa, India and Latin America, attributable to the pandemic” which dented the life and health underwriting result.
In fact, the life and health reinsurance arm of Berkshire Hathaway fell to a -$421 million loss for the full-year 2021, due to the continued mortality effects of the Covid-19 pandemic.
On top of this, underwriting losses of -$782 million in the retroactive reinsurance segment and -$508 million in the periodic payment annuity business, dented the overall reinsurance result.
In fact, the Berkshire Hathaway Reinsurance Group overall result for 2021 was an underwriting loss of -$930 million, which was still much better than the prior year’s -$2.7 billion.
The GEICO auto insurance arm delivered a $1.259 billion underwriting profit and the Primary Group was profitable to the tune of $607 million, so reinsurance was the outlier with a loss.
Overall insurance and reinsurance net underwriting earnings reached $728 million for 2021, up from 2020’s $657 million.
Insurance investment income fell to $4.807 billion for the year 2021, down slightly from 2020’s $5.039 billion.
But the investment return alongside expansive growth in premiums drove a good uplift in Berkshire Hathaway’s all-important insurance float, which reached $147 billion at the end of 2021, up from $138 billion a year earlier, driving another increase to Warren Buffett’s investment firepower for 2022.
