Berkshire posts H1 underwriting loss as AIG deal weighs on results

Berkshire Hathaway has registered an underwriting loss for its insurance operations in the first half of 2017 as the retroactive reinsurance agreement with AIG weighs on results.

Net earnings attributable to shareholders from insurance underwriting were a negative $22 million in the second quarter of 2017 compared to a net profit of $337 million in the same period a year ago. In the first six months, the net underwriting loss was $289 million after a net underwriting profit of $550 million in the same period a year ago.

Berkshire Hathaway operates in both primary insurance and reinsurance of property/casualty, life and health risks through its units GEICO, General Re, Berkshire Hathaway Reinsurance Group (BHRG) and Berkshire Hathaway Primary Group.

In January 2017, Berkshire Hathaway subsidiary NICO, entered into an aggregate excess-of-loss retroactive reinsurance agreement with American International Group (AIG) that became effective on February 2, 2017.

Before foreign currency gains/losses, retroactive reinsurance contracts produced pre-tax underwriting losses of $229 million and $399 million in the second quarter and first six months of 2017, respectively, and $149 million and $259 million, respectively, in the comparable 2016 periods.

The comparative increases in such losses in 2017 were primarily due to deferred charge amortization related to the AIG Agreement and another retroactive reinsurance contract written in December 2016, according to the statement. Berkshire currently estimates pre-tax deferred charge amortization for the year ending December 31, 2017 will approximate $975 million, which includes the aforementioned AIG Agreement.

Berkshire Hathaway Reinsurance Group registered a pre-tax loss of $400 million in the second quarter of 2017 compared to a pre-tax profit of $184 million in the same period a year ago. In the first six months of 2017 the pre-tax loss was $1 billion.

Overall, total revenues from Berkshire’s insurance operations was up at $13.65 billion in the second quarter of 2017 compared to $12.04 billion in the same period a year ago. Pre-tax profit of the insurance group fell to $1.26 billion from $1.75 billion over the period.

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