Warren Buffett’s property and casualty reinsurance businesses at Berkshire Hathaway have been hit by loss creep from prior year events, which have dented the quarter and half-year, lowering revenues for the unit by almost half.
After a first-quarter of 2019 when Berkshire Hathaway suffered from technical losses on the underwriting side of its business, the underwriting performance bounced back somewhat, but prior year event loss creep dented performance.
Overall, Berkshire Hathaway reported insurance and reinsurance segment underwriting profits of $353 million for the second-quarter of 2019, a significant decline from $943 million.
Investment income generated by Warren Buffett’s re/insurance businesses came out at $1.366 billion for the quarter, which helped to offset a little of the underwriting decline.
Higher accident claims at auto insurer Geico was one of the factors that dented underwriting profits, as too was accident year loss activity in the P&C focused businesses, plus a technically unprofitable retroactive reinsurance quarter and a lower life & health reinsurance profit.
Berkshire Hathaway’s reinsurance businesses together suffered a -$104 million underwriting loss for Q2, but profits also almost halved at Geico and were down a significant percentage in the primary insurance group as well, which all contributed to the profit dip across the insurance businesses.
For the first-half of the year the reinsurance businesses at Berkshire Hathaway have suffered a -$357 million underwriting loss, which given the lack of significant catastrophe loss activity suggests the prior year events have been driving some of this decline.
P&C reinsurance made a profit of $198 million for Q2, down over 41% from the $338 million earned in the prior year period.
But retroactive reinsurance suffered a -$238 million loss for the quarter and life and health reinsurance only delivered $11 million of profit.
Premiums written in the P&C reinsurance unit rose though, to over $2.32 billion, up from just under $2.1 billion in the prior year.
In the prior year the P&C reinsurance businesses experienced positive development on prior year loss reserves, which helped to boost profits.
But in the first-half of 2019 Berkshire’s P&C reinsurance unit suffered from loss creep, denting the chances of profits.
Losses and loss adjustment expenses for Q2 rose by $45 million and for the first-half by $428 million, compared to the same periods in 2018.
Berkshire Hathaway reported a net increase of its estimated ultimate claims from prior year losses of roughly $269 million for the first-half, compared to a net decrease of $286 million in 2018.
Investments continued to be a stable driver of profit though, across the insurance and reinsurance businesses of Berkshire Hathaway and by the end of the first-half of 2019 the all-important investment war chest of insurance premium float had reached $125 billion.
Analysts regularly question why the float and cash pile hoarded by Berkshire Hathaway isn’t being put to work in larger acquisition deals, but Warren Buffett continues to explain that he’s in no hurry and why should he be while the re/insurance unit continues to drive such value in terms of float accumulation.