Berkshire Hathaway played catch-up at 4/1 renewal, deep end in Florida pool

Berkshire Hathaway bet heavily on property cat at the April renewals after having been squeezed out of the game at January 1, leaving the group with big exposure on Florida hurricane that could leave several billion in profits on clear skies or do damage to the tune of $15 billion if winds pick up.

“Now we have a portfolio that is very heavily exposed to property catastrophe,” Berkshire Hathaway’s deputy chairman in charge of insurance operations, Ajit Jain, told the company’s annual shareholder gathering of the state of play following the April 1 reinsurance renewals.

Current nat cat exposure maybe some 50% above levels seen just 5 to 6 months ago, he estimated. “I think we have written as much as our capacity will allow us to write.”

While Jain is “very happy” with the book written at April 1, the sudden mass of purchases at a single renewal date has left the overall Berkshire Hathaway portfolio “very unbalanced,” he confessed.

A major hurricane on the Florida coast could prove capable of rendering some $15 billion in damages across the full swathe of Berkshire Hathaway re/insurance operations. If not, Berkshire Hathaway will likely book “several billion” in profits on the deals. Should losses concentrate anywhere else, Berkshire Hathaway should roundly outperform rivals, Jain added.

“Net-net, I am very happy with the portfolio,” Jain said.

The portfolio’s build up brought no shortage of drama. January 1 was a “big disappointment” after “a lot of competitors came out of the woodwork” in roughly the last ten days of December to spoil what had lined up as a favourable price environment.

But the next major reinsurance renewal deadline on April 1, “suddenly prices had zoomed up again” to levels “a lot higher” than in January which “started to look attractive to us.”

Within the hallowed walls of Berkshire Hathaway, the process proceeded more smoothly, Jain said. The call to review strategy and seek approval from his boss, famed investor Warren Buffett (pictured), lasted less than 30 seconds, Jain estimated.

“I think Warren said yes without even listening to what the numbers were.”

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