Berkshire Hathaway ups underwriting gain in 2021; reinsurance rebound offsets hit to auto

Berkshire Hathaway's insurance operations managed an 11.7% gain in pre-tax underwriting profits to $936 million, offsetting a crippling rise in automotive claims with improvements across primary and reinsurance lines.

The reinsurance group brought the single greatest relief to the 2021 books, but still ended the year in the red. The segment cut its pre-tax underwriting loss by two-thirds to $930 million, with reduced but traditional drag from annuity and retrocession plus a COVID-driven loss in life & health.

Crucially, property and casualty (P&C) reinsurance swung back to a pre-tax underwriting gain of $667 million, a nearly $1.5 billion improvement on the prior year period.

Reinsurance premiums written increased by 6.4% or $854 million "primarily attributable to net new business, increased participation and improved prices on renewals and favorable currency translation effects," management said.

Reinsurance losses were nearly flat against the prior year, helping to take 9.1 percentage points from the loss ratio to 71.9%. Nat cat losses more than tripled to $2.1 billion, but were offset, inter alia, by $718 million in favorable prior period loss revisions.

The auto insurance group CEICO proved the weak spot in 2021, suffering a 63% or $2.2 billion decline in pre-tax underwriting earnings to $1.3 billion.

Written premiums rose 9.9% or $3.5 billion to $37.4 billion, after $2.9 billion in the Geico Giveback Program. Those gains got wiped down by a 19.1% or $5 billion rise in claims. Claims rose across all coverages and added 8.1 percentage points to the loss ratio.

Management blamed a "significant" worsening in frequency against depressed levels in the prior year with an uptick visible from Q2 2021. Severity rose in turn on the increase in used car valuations, management said.

Berkshire Hathaway's (non-automotive) primary insurance group increased its underwriting earnings handily to $607 million from $110 million in the prior year.

Written premiums rose a heady 23.3% or $2.4 billion to $12.6 billion, well ahead of a 13.7% or $978 million increase in losses and loss adjustment expense.

Premium gains included a 36% rise at the specialty unit and 25% gain at Nico primary and a 20% gain at a liability unit USLI.

The 2021 claims included $402 million from Hurricane Ida and Winter Storm Uri and $167 million attributable to the pandemic, all offset partially by favorable prior year adjustments.

With the loss ratio down 4.1 percentage points to an even 70%, management warned again that the business lines "may be subject to high severity and long claim-tails," thus be exposed to "significant increases" in claims at any point down the road.

The P&L for the larger Berkshire Hathaway group additionally included increases in operating profits across key segments in railroads, energy, manufacturing, retail and services.

The investment hand of Warren Buffett (pictured) went on to deliver the next $32.4 billion for the group in investment earnings.

The company's attributable net profits more than doubled to $90 billion.

The group ended 2021 with an eye-catching $144 billion in cash and cash-equivalents on its balance sheets. In his letter to shareholders, Buffet calls the position excessive and blames his "failure to find entire companies or small portions thereof (that is, marketable stocks) which meet our criteria for long-term holding."

Share repurchases will remain the capital deployment of choice until that changes, as long as the "price/value equation is right," Buffett wrote.

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