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Berkshire Hathaway underwriting profit up 60% in fourth quarter


Operating income that Berkshire Hathaway Inc.'s insurance underwriting generated during the fourth quarter of 2015 increased 60.2%, to $306 million, due in part to business won from competitors.

Investment income for the insurance operations, which include Berkshire Hathaway Insurance Group, General Reinsurance, a group of primary insurers as well as personal automobile insurer GEICO increased 17.4% from a year earlier, rising to $1.03 billion.

For all of 2015, Berkshire Hathaway's insurance-related operating income generated declined 31.3%, to $1.16 billion, while investment income increased 5.2% to $3.73 billion.

General Re's underwriting profit dropped 52.4%, to $132 million, and Berkshire Hathaway Reinsurance Group's underwriting dropped 30.5% to $421 million. Underwriting profit for the other primary insurer group increased 31.6% to $824 million compared with a year earlier.

Berkshire Hathaway said in its annual report that the results reflect rising claim costs at GEICO and lower earnings from reinsurers, which were partially offset by increased earnings from other primary insurance operations.

Berkshire Hathaway's overall net income for the fourth quarter of 2015 increased 31.8% to $5.48 billion, bolstered by improved results in its railroad business. For the year as a whole, Berkshire Hathaway's net income increased 21.2% to $24.08 billion.

Managing Director Meyer Shields and Assistant Vice President Christopher Campbell at Keefe, Bruyette & Woods Inc. in Baltimore said in a report they anticipate that Gen Re and Berkshire Hathaway's premium volumes and margins “to generally decline in 2016 and beyond, reflecting enduring reinsurance price competition and some fallout from Berkshire's increasing pursuit of primary premium volume at the likely expense of some former cedents.”

Results for the primary group, said the analysts, “reflected strong, but slowing growth within Berkshire Hathaway Specialty Insurance,” which is attributable to “the persistently favorable claims environment.

“Sustained impressive underwriting profitability despite (the business') presumed rapid growth is unusual and suggests to us that Berkshire is winning unusually profitable business,” Messrs. Shields and Campbell said in the analysis.

The report said also Berkshire Hathaway Specialty, which has hit $1 billion in annual premiums, “has created something of a virtuous cycle for itself. We attribute a lot of its success to particularly profitable business won from (New York-based American International Group Inc.).

“As much of (the unit's) senior management came from AIG, a lot of AIG's remaining commercial business is unprofitable, and its withdrawal from particularly unprofitable products should provide more opportunities for (the unit) to sift through (likely at higher, or much higher, rates.)” said the report.

Cliff Gallant, an analyst at Nomura Securities Inc. in San Francisco, said in an investor note that reinsurance pricing “remains under pressure, particularly in the property catastrophe lines, and the company continues to withdraw capacity as reflected in declining premium volume.

“In a period of low loss activity, however, underwriting results were strong, with Gen Re reporting an 87.6% combined ratio and (Berkshire Hathaway Reinsurance Group) reported a 90.8%,” Mr. Gallant said.