Berkshire’s P&C unit hit with $1.7bn in cats, underwriting loss widens to $717mn
Berkshire Hathaway’s P&C operations fell to a $717mn underwriting loss in the quarter, after the company was struck by $1.7bn in catastrophe losses—mostly in the reinsurance division—stemming from Hurricane Ida and the major flooding event that hit Europe in July.
The underwriting loss was a deterioration from a year ago, when P&C operations—including Berkshire retroactive reinsurance group—recorded a $145mn underwriting loss, driven by $815mn in catastrophe claims, which included $513mn in losses tied to the Covid-19 pandemic.
Berkshire’s insurance businesses produced a $784mn net loss in this year’s quarter, versus the $213mn net loss it incurred last year. That was despite net investment income from insurance operations increasing by more than 14%, to $1.2bn, from just over $1bn a year ago.
The P&C reinsurance division shifted to a $247mn underwriting loss in the quarter just ended, after registering a $99mn gain last year. Similarly, Geico swung to a $289mn underwriting loss, reversing the auto insurer’s $276mn gain last year. Berkshire’s primary insurance operations narrowed its underwriting loss to $23mn, from $126mn a year ago.
The primary insurance division reported $260mn in catastrophe claims this quarter, but also benefitted from $311mn in favorable development on prior-year claims.
The overall result in the P&C group overall was driven by the $1.5bn in catastrophe claims reported by the reinsurance division, though Geico was also hit with $400mn in cat losses, after disclosing none a year ago. Berkshire includes loss events where claims exceed $100mn in summing its cat loss totals.
The result within Geico is noteworthy, as industry observers have anticipated that the flood loss component from Hurricane Ida to the auto insurance business could be substantial. The conglomerate also cited severe impacts from supply chain disruption as impacting all its business unit, principally by driving up inputs costs.
Geico combined ratio rises to 103% from $400mn Ida hit, higher frequency, and severity
Geico’s combined ratio grew to 103% in the quarter, from 96.8% last year. The $400mn in losses from Hurricane Ida, along with rising claims frequency and severity, helped push the auto insurer loss ratio up 8.1 points, to 88.4%, from 80.3% a year ago.
Net premiums written at the auto specialist grew by 19.5% to $1.7bn compared to 2020, and premiums earned climbed 12.5% to $1.1bn, as the insurer continued to benefit from a return to normal levels of economic activity.
Its expense ratio improved by 0.7 points compared to the prior-year quarter, reflecting the increase in premiums earned.
The subsidiary posted an underwriting loss of $289mn, marking a drop from last year’s $276mn gain, when the insurer benefitted from less driving during the COVID-19 pandemic, resulting in average claims frequencies falling “below historical levels.”
Primary insurance group NWP grows by 17%, as BHSI premiums up 42% YTD
The combined ratio for Berkshire’s primary insurance group dropped to 100.8% on the year, down from 105.1% last year. The better result came from a lower loss ratio, which was down to 75.6%, from 79.4% last year. The primary insurance division also generated a lower expense ratio: 25.2% versus 25.7% in the prior period.
The primary insurance group trimmed its underwriting loss to $23mn from $126mn a year ago.
The $260mn in cat claims the insurance division had in the third quarter marked an improvement from the $400mn it registered a year ago, which included claims tied both to cat activity and from the Covid-19 pandemic. The insurance group also benefitted from $311mn in favorable reserve development in the quarter, well ahead of the $190mn in reserve releases the insurance division had through 9 months a year ago.
Net premiums written in the third quarter increased by $503mn—a 16.7% spike—driven by a 42% year-to-date jump at Berkshire Hathaway Specialty Company, which has grown predominantly in professional liability, casualty, and property lines of business.
Elsewhere in the division, premiums for MedPro Group at up by 19% on the year, compared with 32% for NICO Primary, 8% growth at GUARD, and 20% advance for USLI.
P&C reinsurance cat claims spike to $1.5bn from $308mn in ‘20
The P&C reinsurance unit moved to a $247mn underwriting loss in the quarter, from a $99mn underwriting gain, as its combined ratio grew to 106.8% from 97.1% last year. The unit generated an 82.1% loss ratio, above last year’s 74.2%.
The downturn was the result of the $1.5bn claims, which were far higher than the combined $421mn in cat losses the division had last year both from natural catastrophes and the Covid-19 pandemic. Nat cats—Hurricanes Laura and Sally—cost the reinsurance business $308mn last year, while pandemic claims added $113mn to the total.
P&C reinsurance NPW were up by 6%, propelled mostly by new business, increased participations on renewals, improved prices and favorable foreign currency effects.
Underwriting expenses in the segment also jumped almost 25% to $898mn from $785mn year-on-year fueled by higher brokerage fees and commissions. The expense ratio also grew, to 24.7%, from 22.9% in the prior year.
But Berkshire’s retroactive reinsurance losses narrowed 60% to $158mn in Q3 from $394mn in the same quarter of 2020 derived from the amortization of deferred charges and changes in the estimated timing and amounts of future claims.
Overall, including life and retroactive operations, the firm’s pre-tax underwriting losses for the reinsurance group deteriorated to $708mn from $441mn in the same quarter a year earlier as the Life group’s results also swung to an underwriting loss of %181mn from a $17mn profit in Q3 2020.
Higher dividend income pushes NII 14.4% higher to almost $1.2bn
Insurance investment income in the third quarter went up 14.4% to almost $1.2bn from $1bn in the previous year.
Berkshire said the insurance investment results reflected lower interest income and higher dividend income during the third quarter of the year.