Berkshire Hathaway auto unit Geico sinks to $1.9bn 2022 underwriting loss

Berkshire Hathaway’s retail auto insurer Geico ended 2022 with a massive $1.9 billion pre-tax underwriting loss in 2022, adding $456 million in losses in the fourth quarter alone with no visible improvement loss ratios despite finally showing rates rising at an accelerated pace.

The unit's combined ratio ended the year at 104.8%, suggesting virtually no Q4 improvement from the 104.9% recorded for the first nine months.

Written premiums rose 2.5% for the year to $39.1 billion including a 2.5% y/y gain in the fourth quarter.

Those modest revenue gains come as Geico takes rate at an accelerating pace, but client departures keep pace. Average rate rose 11.3% for FY2022, up from 5.4% reported after nine months. But the decline in policies in force is up to an 8.9% pace, above the 4.6% annual pace reported for the three quarters of year.

Losses and loss adjustment expenses far outpaced premiums, up a staggering 17.1% in 2022 to $36.3 billion, an increase that could only be trimmed to an 8.3% pace by the fourth quarter. The loss ratio of 93.1% for both FY2022 and Q4 is up nearly 11 points from FY2021.

Management admitted to rising post-pandemic rebound in frequency from Q2 2021 and “significant increases in average claims severities, primarily due to significant cost inflation in property and physical damage claims” first visible in H2 2021 and running through 2022.

Used car prices drive severities on total losses and auto part shortages bring elevated severities on partial losses. Injury claim severities “continued to trend higher in 2022.”

Underwriting expenses decreased by $881 million or 16.2% in 2022, chiefly on “significant reductions in advertising costs and lower employee-related costs.”

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