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Berkshire Hathaway’s underwriting profits rise on fewer catastrophe losses

5th November 2018 - Author: Steve Evans

The insurance and reinsurance units of Warren Buffett’s Berkshire Hathaway have experienced a strong bounce back from the major catastrophe losses of the prior year, delivering almost $1.8 billion of underwriting profit for the first nine-months of 2018.

Berkshire Hathaway logoBerkshire Hathaway has reported a $441 million underwriting profit for Q3 2018, a significant turnaround from the loss of -$1.439 billion in the prior year period.

At the same time the Berkshire Hathaway insurance and reinsurance businesses delivered an impressive investment performance for the quarter, reporting $1.239 billion of investment income, up from $1.044 billion in Q3 2017.

Helping to drive the turnaround was a significantly lower major catastrophe loss experience, as Berkshire Hathaway reported only $372 million of incurred estimated pre-tax losses from two significant catastrophe events in the third quarter of 2018, with its property and casualty reinsurance units experiencing $267 million of losses from Hurricane Florence and Typhoon Jebi.

That compares to the huge catastrophe bill of $3 billion from the major hurricanes and other catastrophes in the prior year quarter.

However, the retroactive arrangements and periodic payment annuities Warren Buffett’s reinsurance units have entered into drove those segments to an underwriting loss for the quarter, while the property and casualty and life and health reinsurance units reported underwriting profits overall.

The National Indemnity NICO Group unit saw its earned premiums shrink and it fell to a small underwriting loss, largely through quota share impacts from some of the major deals that Berkshire has entered into.

General Re grew its earned P&C premium base considerably, to $1.08 billion, up from $844 million in the prior year, which the firm said reflects higher direct and broker markets business, derived primarily from new business and increased participations for renewal business in property and casualty markets.

The General Re life and health reinsurance business also grew, with earned premiums of $964 million up on the prior years $786 million, although the underwriting result from this business was actually worse than for the prior year.

The Berkshire Hathaway Primary Group insurance business wrote higher premiums and had a lower loss and expense ratio, resulting in an improvement in the overall underwriting result for this unit as well, with expansion thanks to growth in specialty and medical lines in particular.

The Geico auto insurance arm grew its premiums by 10.1% in Q3 2018 and 12.6% for the first nine months of the year, while a 7.8% increase in premiums per policy signals greater profitability of this book in 2018 helped by rate increases.

On the investment side of Berkshire’s insurance and reinsurance businesses, the $1.239 billion of investment income reflected strong performance for the quarter and overall the investment pot of all-important float at Berkshire Hathaway now stands at $118 billion, up from $114 billion since the end of 2017.

Analysts called the insurance and reinsurance results at Berkshire an impressive turnaround from the prior year’s losses.

Berkshire Hathaway also revealed that its insurance and reinsurance businesses expect up to $550 million of catastrophe losses from hurricane Michael.

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