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Berkshire Hathaway’s reinsurance underwriting loss widens on COVID & catastrophes

27th February 2021 - Author: Steve Evans

Berkshire Hathaway’s insurance and reinsurance business suffered the effects of the global pandemic and severe catastrophe events in 2020, driving the reinsurance underwriting loss higher to -$2.7bn for the year.

berkshire-hathaway-reinsurance-logoA year ago, the reinsurance business of the Warren Buffett owned conglomerate, Berkshire Hathaway Reinsurance Group, fell to an underwriting loss of -$1.472 billion for 2019, worse than 2018’s -$1.109 billion.

For 2020, the overall reinsurance underwriting loss widened significantly to -$2.7 billion, but the costs of COVID-19 and significant catastrophe events were the major contributor to this.

Berkshire Hathaway’s property and casualty reinsurance division saw its underwriting earnings dented as losses and loss adjustment expenses rose 35.3% to $2.6 billion for the full-year 2020.

The leading contributor was the COVID-19 coronavirus pandemic, which drove $964 million of losses to the Berkshire Hathaway P&C reinsurance unit, while estimated losses from significant catastrophe events amounted to $667 million for the year, with the main loss events being Hurricanes Laura and Sally and the U.S. wildfires.

RMS

Adding to the loss impacts, were unfavourable reserve adjustments to prior years of $162 million in 2020, which was largely due to legacy environmental, asbestos and other latent injury claims.

As a result, the Berkshire Hathaway Reinsurance Group loss ratio hit 81% in 2020, up 73.8% in 2019 and 77.6% in 2018.

Underwriting expenses were another hit to profit, as they rose by $533 million (20.6%) over 2019 to $3.115 billion.

Driving the higher expenses though was the fact that Warren Buffett’s P&C reinsurance business has been expansive in 2020, with premiums written increasing by 28% during the year, to almost $13.3 billion.

The result for the P&C reinsurance business was an underwriting loss of -$799 million for the year.

The life and health reinsurance unit fell to an -$18 million underwriting loss for 2020, while the retroactive reinsurance unit reported pre-tax underwriting losses of -$1.1 billion in 2020, and the company experienced a pre-tax underwriting loss from periodic payment annuity contracts of -$550 million and another -$18 million from variable annuity guarantee reinsurance contracts.

More positively, the Berkshire Hathaway Primary Group reported positive underwriting earnings of $110 million for 2020, and the auto insurance unit GEICO saw a bumper year thanks to lower claims factors related to the pandemic, with underwriting earnings of $3.428 billion, significantly higher than 2019’s $1.506 billion.

All of which goes to show the value of a massively diverse and capital rich underwriting business, as well as the value of the investment side of the insurance and reinsurance business at Berkshire Hathaway, which has always been such a profit driver for Warren Buffett

The fourth-quarter of 2020 saw Warren Buffett’s insurance and reinsurance businesses overall deliver an underwriting loss of -$299 million, but for the full-year the underwriting managed to profit at $657 million of positive income, thanks to the contribution of the GEICO auto unit and Berkshire Hathaway Primary Group.

Insurance investment income was down on the prior year, at $5.039 billion for 2020, compared to $5.53 billion in 2019.

However, the all-important insurance float, the pool of premiums that are investable by Berkshire Hathaway, still grew by $9 billion during 2020, to end the year at a new high of $138 billion.

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