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Berkshire Hathaway suffers $3bn cat hit, drives re/insurance to underwriting loss

6th November 2017 - Author: Steve Evans

Warren Buffett’s conglomerate Berkshire Hathaway has suffered around $3 billion of losses from the recent major catastrophe events, which has driven his re/insurance businesses to an underwriting loss for the quarter.

Berkshire Hathaway logoBerkshire Hathway now faces the prospects of suffering its first full-year underwriting loss in 15 years, as the impacts of the catastrophes on top of reserve related charges from the AIG  deal earlier this year mean the firms underwriting performance could come out negative.

The catastrophe losses drove Berkshire Hathaway’s operating earnings down to just over $4 billion for the quarter, compared to almost $7.2 billion in Q3 of 2016.

The insurance and reinsurance underwriting business fell to a -$1.439 billion loss for the third-quarter of 2017, compared to a $272 million gain in the prior year.

For the first nine months of 2017 the insurance and reinsurance businesses at Berkshire Hathaway now face an underwriting loss of -$1.728 billion already, which the company will not overcome in the final quarter of the year suggesting its first underwriting loss in more than a decade.

RMS

GEICO, Buffett’s auto insurance giant, fell to a $416 million pre-tax loss for the quarter, while reinsurance firm General Re fell to a $504 million loss.

Berkshire Hathaway Reinsurance Group reported a $1.341 billion pre-tax loss, while the Berkshire Hathaway primary insurance arm managed a profit of $52 million.

Of the $3 billion of catastrophe losses, due to hurricanes Harvey, Irma and Maria as well as the Mexico earthquakes, $500 million fell to auto insurer GEICO, $835 million to General Re, $1.45 billion to Berkshire Hathaway Reinsurance Group and $225 million to its Berkshire primary insurance businesses.

The investment float side of Warren Buffett’s reinsurance businesses continues to drive value though, with $1.246 billion of insurance investment income in Q3, and $2.9 billion for the year so far.

This has driven Warren Buffett’s investment float at Berkshire Hathaway to a new high, with now $113 billion of firepower at his disposal to invest.

Berkshire Hathaway has continued to grow its underwriting business, with growth in all division across the latest quarter, as premiums increased to $13.35 billion, compared to $11.36 billion in the prior year period.

With an estimated $60 billion of excess capital at its disposal, Berkshire Hathaway has all the ammunition required to take advantage of any increase in reinsurance rates following the recent catatsrophe events.

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