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The commercial insurance and property/casualty reinsurance operations of Berkshire Hathaway Inc. saw decreases in underwriting income in 2016 as gains from favorable prior-year loss development eased, according to the conglomerate’s annual report released Saturday.
Despite the declines in property/casualty underwriting income, in his annual letter to shareholders that accompanies the report, Berkshire Hathaway Chairman Warren Buffet was upbeat about the company’s insurance operations, noting that its specialty and surplus lines unit had seen a sharp increase in premium volume.
Berkshire Hathaway Primary Group — which includes MedPro Group, National Indemnity Co. primary business, Berkshire Hathaway Homestate Cos., Berkshire Hathaway Specialty Insurance Co. and Berkshire Hathaway GUARD Insurance Cos. — reported $6.26 billion in 2016 premiums earned, a 16% increase over 2015.
But year-over-year losses and expenses increased 22.5% to $5.6 billion, with a combined ratio of 89.5% in 2016 compared with 84.7% in 2015.
“The comparative increase in the loss ratio in 2016 reflected comparative declines in favorable loss development of prior years’ loss events and higher loss ratios on current year business,” the report said.
The primary sector reported a pretax underwriting gain of $657 million, down 20.3% compared with 2015.
In its reinsurance operations, the company said that General Reinsurance Corp. reported 2016 premiums earned of $5.64 billion, a 5.7% decrease from 2015, and a pretax underwriting gain of $190 million, 43.9% more than 2015 due to improved results on its life/health business. Property/casualty pretax underwriting gain in 2016 was $117 million, down 22% compared with 2015.
“The decline was primarily due to lower gains from reductions of estimated losses on prior years’ property business. There were no significant catastrophe or large property losses in each of the past three years,” the report said.
In its other reinsurance operations, Berkshire Hathaway Reinsurance Group, which includes its catastrophe reinsurance business, reported $8.5 billion in earned premiums, an 18% increase over 2015. The increase was in large part due to a 20% quota-share contract with Insurance Group Australia Ltd., which became effective July 1, 2015.
“Our premium volume is generally constrained for most property/casualty reinsurance coverages as rates, in our view, are generally inadequate. Consistent with General Re, we have the capacity and desire to write more business when appropriate pricing can be attained,” the report said.
Pretax underwriting gain for 2016 was $822 million, close to double the gain in 2015 largely due to life and annuity business and lower losses on retroactive reinsurance business. Property/casualty pretax underwriting gain fell 18.6% to $767 million. Again, the fall was due to declines in gains from prior-year loss reserves, the report said.
Hartford Financial Services Group Inc. on Tuesday said it has entered a $1.5 billion aggregate excess of loss reinsurance agreement with a Berkshire Hathaway Inc. unit that will provide coverage for certain of its asbestos and environmental liability exposures.